Asia’s News Source avcj.com November 01 2016 Volume 29 Number 41

EDITOR’S VIEWPOINT ’s Future Fund makes innovation an investment priority Page 3

NEWS Actis, BlueRun, CDH, China Everbright, Crescent, Gopher, IDG, IFC, Ironbridge, Jungle, Mayfield, Mirae, Motilal Oswal, Multiples, NewQuest, Northstar, Platinum, STIC, Sequoia, Simmons, Walden, Warburg Pincus Page 4

INDUSTRY Q&A Shoreline’s Xiaolin Zhang Behind the blocks on distressed debt opportunities in China GPs should look further than finance for blockchain opportunities Page 6 Page 11

FUNDS DEAL OF THE WEEK

Blume goes bigger Internet advocates VC firm upsizes to $60m for Fund II Page 10 PE buys marketing platform for lawyers Page 10 Private Equity & Venture Forum

7 December, Shangri-La’s Far Eastern2016 Plaza Hotel,

BOOK GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY NOW! AND SAVE Snapshot of confirmed speakers include: US$200 KEYNOTE (until 4 NOV only) Chih-Kung Lee Minister of Economic Affairs REPUBLIC OF CHINA

David Chen Dennis Chiang CY Huang Vice Chairman Head of Merchant President CHINA DEVELOPMENT Banking Division FCC PARTNERS INDUSTRIAL TAISHIN INTERNATIONAL BANK

Jamie Lin Charles Pan Jonathan Zhu Founding Partner, Chief Strategy Officer Managing Director APPWORKS VENTURES; MIGME BAIN CAPITAL Chairman, TAIWAN INTERNET AND E-COMMERCE ASSOCIATION

For the latest programme and full speaker line-up, please visit avcjtaiwan.com

260 25 50+ 8 8 180 Participants Speakers LPs Countries Exclusive Panel Companies Discussions

Simultaneous translation is available

Registration enquiries: Sponsorship enquiries: Sarah Keung T: +852 2158 9765 Darryl Mag T: +852 2158 9639 Enquiry E: [email protected] E: [email protected]

Lead Sponsor Asia Series Sponsor

Co-Sponsors

Join your peers Scan the QR code and download the avcjtaiwan.com #avcjtaiwan latest brochure Private Equity & Venture Forum EDITOR’S VIEWPOINT [email protected]

7 December,Taiwan Shangri-La’s Far Eastern2016 Plaza Hotel, Taipei Managing Editor Tim Burroughs (852) 2158 9661 Associate Editor An eye on the Winnie Liu (852) 2158 9663 Staff Writer Holden Mann (852) 2158 9646 Justin Niessner (852) 2158 9678

Design future Edith Leung, Mansfield Hor BOOK Rana Tang

Events GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY NOW! FUTURE FUND IS AUSTRALIA’S LARGEST sovereign fund that wants to follow the same AND George Sengulovski, SAVE and Atlassian is the path is check size. One solution is to target Jessie Chan, Jonathon Cohen, Snapshot of confirmed speakers include: country’s biggest start-up success story. The late-stage rounds for established start-ups that Sarah Doyle, US$200 former got exposure to the latter in 2010 – five would probably be public by now were it not Amelie Poon, Fiona Keung, KEYNOTE (until 4 NOV only) years before the company went public – but not for the largesse of hedge funds, sovereign funds Jovial Chung, through an Australian firm. Future and mutual funds seeking some private markets Chih-Kung Lee Marketing Fund’s portfolio GP was Accel Partners, which alpha. This is what took Saudi Arabia’s Public Agrina Sandri, Priscilla Chu, Minister of Economic Affairs initially invested $60 million in Atlassian, made a Investment Fund into Uber and ’s GIC Yasna Mostofi REPUBLIC OF CHINA partial exit before the IPO, and now holds a stake Private into Flipkart and Xiaomi. in the company worth more than $600 million. Investing through a fund-of-funds is another Research Helen Lee, Herbert Yum, The ’s other venture option, and it may be particularly attractive Kaho Mak, Tim Wong, David Chen Dennis Chiang CY Huang capital relationships have delivered early access to emerging Asian LPs that want exposure to Vice Chairman Head of Merchant President to the likes of Uber, Didi Chuxing, Pinterest, the world’s leading VC firms but don’t have Sales CHINA DEVELOPMENT Banking Division FCC PARTNERS Airbnb and Snapchat. These are the highlights the local knowledge or networks to secure it. Anil Nathani, INDUSTRIAL BANK TAISHIN INTERNATIONAL of an early-stage portfolio worth more than Beyond that lies the separate account, which Darryl Mag, Debbie , BANK Nathan Ho, Samuel Lau, A$2 billion through fund-of-funds, direct fund offers more customization and – depending on Gavin Lam, Pauline Chen investments and co-investments, Future Fund the arrangement – places a higher degree of Jamie Lin Charles Pan Jonathan Zhu CIO Raphael Arndt said earlier this year. discretion in the hands of the LP. Subscriptions Founding Partner, Chief Strategy Officer Managing Director Jade Chan, Karina Ting APPWORKS VENTURES; MIGME BAIN CAPITAL As of June, the group had total assets of What Future Fund is said to have fashioned Sally Yip Chairman, TAIWAN INTERNET A$122.8 billion, of which 10.4% was in private to channel its exposure to IVFA and other small AND E-COMMERCE equity. And of that A$12.8 billion, just under half to mid-cap managers in Asia might be termed a Publishing Director ASSOCIATION was deployed in venture capital and growth separate account-plus. It created a pool of capital, Allen Lee equity strategies. Thanks to this approach, it is appointed a manager, and then proceeded to For the latest programme and full speaker line-up, please visit avcjtaiwan.com almost certainly one of the most progressive populate the pool. The manager offers ideas but sovereign wealth funds globally in terms of Future Fund conducts its own assessments and 260 25 50+ 8 8 180 addressing innovation. signs off on any decisions. Flexibility is the key: Headquarter Participants Speakers LPs Countries Exclusive Panel Companies Suite 1602-6 Discussions Writing in Future Fund’s annual report, Steve a mid-market GP may sit alongside a Chinese Grand Millennium Plaza Byrom, head of private equity, said that the asset VC firm set up by ex-employees of a leading 181 Queen’s Road class (and VC and growth equity in particular) domestic internet company, a single LP structure Central Hong Kong T. (852) 2158 9700 has never been more important because it for early-stage deals in India, and a handful of F. (852) 2158 9701 offers access to an innovation cycle largely co-investments. E. [email protected] uncorrelated to the challenging global economic There is no guarantee that more sovereign URL. avcj.com Simultaneous translation is available and market environment. “We believe we are wealth funds will embrace venture capital Beijing Representative Office in the midst of a multi-wave innovation cycle wholeheartedly and enduringly – some won’t Registration enquiries: Sponsorship enquiries: No.1-2-(2)-B-A554, 1st Building, driven by empowering the consumer, cloud be able to handle the risks, particularly where No.66 Nanshatan, Sarah Keung T: +852 2158 9765 Darryl Mag T: +852 2158 9639 Chaoyang District, Beijing, Enquiry computing, big data, machine learning and emerging markets are concerned, and others will E: [email protected] E: [email protected] People’s Republic of China mobile connectivity,” he added. flee as soon as they begin to feel the effects of T. (86) 10 5869 6203 Venture capital in China and India are now a down cycle. But for those that want exposure F. (86) 10 5869 6205 E. [email protected] Lead Sponsor Asia Series Sponsor on Future Fund’s agenda, as are growth equity to new business models, capable of disruption strategies in both countries – especially where that extends into other private equity strategies,

they offer access to areas that are seen as proxies customization will increasingly be the name of The Publisher reserves all rights herein. to the emerging middle class. The group’s first the game. Reproduction in whole or in part is permitted only with the written consent of foray into India has already been reported: it AVCJ Group Limited. ISSN 1817-1648 Copyright © 2016 backed the most recent fund raised by India Co-Sponsors Value Fund Advisors (IVFA), a GP with a track record in consumer and media, infrastructure Tim Burroughs A Mergermarket Group company services and healthcare. Managing Editor The challenge for Future Fund and any Asian Venture Capital Journal

Join your peers Scan the QR code and download the avcjtaiwan.com #avcjtaiwan latest brochure Number 41 | Volume 29 | November 01 2016 | avcj.com 3 NEWS

ZTO Express raises $1.4b in Council for Social Security Fund (NSSF). The ASIA PACIFIC capital will be channeled into 10-13 funds on CEL US IPO platform. IFC proposes backing Actis’ PE-backed Chinese logistics operator ZTO Express has raised $1.4 billion in its New York Credit card management energy fund Stock Exchange IPO after pricing its shares The International Finance Corporation (IFC), the above the indicative range. The company sold app raises $84m investment arm of the World Bank, has proposed 72.1 million American Depository Shares (ADS) U51.com, a Chinese credit card management a $100 million investment in Actis Capital’s latest at $19.50 apiece, above the indicative range of mobile app, has secured $84 million in an emerging markets energy fund. The vehicle will $16.50-18.50. A further 10.82 million shares could extended Series C round from Chinese asset invest in energy generation and distribution be added to the offering if underwriters fully manager Harvest Global Investments and assets in emerging markets in Asia, and exercise the overallotment option. department store operator Intime Retail Group. Latin America. It has a target size of $2 billion. The extension brings U51’s overall Series C round to $394 million. AUSTRALASIA Sequoia to invest $52m in Gopher Ironbridge-owned Bravura Sequoia Capital China has agreed to invest files for IPO RMB348 million ($51.7 million) in Gopher Asset Australia-based financial services administrator Management, the alternative asset management Bravura Solutions is looking to raise A$148 million unit of China’s Noah Holdings. The commitment ($113 million) through a domestic IPO – three is expected to help Gopher extend its product years after PE owner Ironbridge Capital privatized capabilities domestically and internationally. the business. The company will sell 78.9 million It is the largest US IPO by any company so new shares and 23.2 million existing shares for far this year; the largest US float by a Chinese IDG, Walden lead round for A$1.45 apiece. Ironbridge will sell 16.1 million company since Alibaba Group in 2014; and the shares, reducing its stake to 47.2% from 86.7%. fourth-largest offering on record by a PE-backed AI start-up Chinese company on a US exchange. IDG Capital Partners and Walden International Crescent sells stake in Following the IPO, Warburg Pincus’ 6.1% have led a $65 million Series B funding round stake in ZTO was diluted to 1.5%, while Sequoia for US and China-based artificial intelligence (AI) ClearView Wealth Capital went from 5.6% to 1.4%. Gopher China and robotics company Rokid. The capital will be Crescent Capital Partners has agreed to sell S.O. Project – which is ultimately controlled by used to develop the company’s home robotics a 14.9% stake in Australian financial services Gopher Capital, with Sequoia providing advisory offerings and improve customer experience in provider ClearView Wealth to Sony Life services – dropped from 1.6% to 0.4%. China and the US, where a product roll-out is for approximately A$145 million ($111 Founded in Shanghai in 2002, the company planned for the first quarter of 2017. million). The private equity currently holds a covers 96% of China’s cities with a range of 52.9% interest in ClearView, having headed a services targeting the e-commerce and printing JD Finance leads $30m consortium that submitted a takeover offer for industries. It claims the fastest growth rate the business in July 2012. among the five largest Chinese express delivery round for Microseer companies as of the end of 2015, with parcel JD Finance, the financial subsidiary of Chinese volumes growing at a compound annual rate of online retailer JD.com, has led a $30 million Series GREATER CHINA 80.3% from 2011 to 2015. B round for Microseer, a Shanghai-based human resources and IT outsourcing services start-up. CDH realizes $806m Existing investors including IDG Capital Partners, -denominated tranches - with more China , Shanghai Jinye Equity through WH partial exit than $500 million in aggregate commitments. Investment Partners and CICC Private Equity also CDH Investments has made another partial exit The two vehicles, which were both took part in the round. from Chinese pork producer WH Group, selling oversubscribed, will make seed to Series A round an approximately 6.83% stake for HK$6.25 billion investments in local start-ups. The firm has also ($806 million). One billion shares were placed at promoted investment directors Wei Cao and NORTH ASIA a price of HK$6.25 apiece, reducing the private Jiajie Wu to managing director level. equity firm’s holding to 12.94% from 19.77%. This STIC raises $530m for follows a HK$9.25 billion partial exit in August. CEL to receive mandate special sits fund from NSSF BlueRun closes $500m STIC Investments has raised $530 million China Everbright (CEL), the Hong Kong-listed for a special situations fund that will target early-stage fund multi-platform asset manager backed by state- restructuring opportunities involving South BlueRun Ventures has closed its latest China- owned China Everbright Group, is set to receive Korean conglomerates. The STIC Special Situation focused fund - comprising US dollar and a separate account mandate from the National Fund launched in May 2015 and closed earlier in

4 avcj.com | November 01 2016 | Volume 29 | Number 41 NEWS

October, with Korea’s National Pension Service Northstar offers $238m for NewQuest, Kotak invest in (NPS) coming in as the anchor investor. Innovalues Paragon companies Lintec buys Mactac from Northstar Group has offered to buy Singapore- NewQuest Capital Partners has joined a $21 listed Innovalues, a components manufacturer for million investment in construction firm Capacit’e Platinum Equity the automotive and industrials sectors, in a deal Infraprojects and engineering components Japanese adhesives producer Lintec Corporation that values the business at approximately S$331.4 manufacturer Maini Precision Products, both of has agreed to buy US-headquartered labels million ($238 million). which are portfolio companies of India’s Paragon manufacturer Mactac from Platinum Equity The PE firm has launched a scheme of Partners. The GP is acquiring shares from existing for $375 million. The PE firm acquired Mactac arrangement whereby shareholders in Innovalues investors. Its partner in the deal is Infina Finance for $170 million in 2014 from listed packaging will receive S$1.01 per share in cash or one share Private, which is owned by Kotak Mahindra Bank business Bemis. The company’s European in the Precision Solutions Group - parent of the and the Kotak family. operation was sold to Avery Dennison in August. acquisition vehicle - plus S$0.61 per share in cash. Existing Innovalues shareholders can account MOPE invests $15m in Acushnet lowers IPO price, for no more than 20% of Precision Solutions. The offer represents an 18.1% premium to Innovalues’ Ganesh Grains gains on debut September 30 closing price. Motilal Oswal Private Equity (MOPE) has invested Acushnet Holdings, which owns the Titleist and INR1 billion ($15 million) in Indian packaged FootJoy golf brands, saw its shares jump 5.9% cereals producer Ganesh Grains. The company in the first day of trading in New York following will use the capital to increase brand awareness, a smaller-than-expected $328.7 million IPO. The expand its distribution network and build out its company sold 19.33 million shares at $17 apiece, production capacity. below the indicative range of $21-24. PE investors include Mirae Asset Private Equity; Woori- Mayfield, IIFL invest $7.5m Blackstone Korea Opportunity Private Equity Fund, and Neoplux Private Equity. in Box8 US early-stage investor Mayfield and IIFL Wealth PFG commits $15m to Yello Management have invested INR500 million ($7.5 million) of Series B funding in Indian quick service Mobile unit Goh Leng Tse, chairman of Innovalues, and restaurant (QSR) chain and food delivery start-up Yello Digital Marketing (YDM), the digital three other directors have agreed to vote their Box8. The capital will go towards technology marketing unit of South Korean mobile internet combined 39% shareholding in favor of the improvements and geographic expansion. company Yello Mobile, has received $15 million Northstar offer. Should shareholders support the in funding from Partners For Growth (PFG), the transaction, Innovalues would be de-listed. PE arm of SVB Financial Group. The capital will The company produces precision machine be used to purchase additional shares in the parts and components for vehicles, printers, company’s 18 affiliates – which have more than mechanical devices, sub-assembly products, and Simmons invests in 1,400 employees and over 5,000 clients – and water treatment systems. It has manufacturing consolidate control within the group facilities in China, Thailand and . China Malaysia’s Leap Energy is the company’s biggest geographical market, Simmons Private Equity (SPE), an energy-focused accounting for 59% of revenue, ahead of the investor based in the US, has acquired Malaysian US at 18%. Four fifths of total sales are to the oil company Leap Energy as part of a plan to automotive sector. establish a global upstream consulting group. The Multiples invests $110m in investment will support SPE’s broader portfolio with operational expertise in mature field Arvind deal will see Ostro invest an initial INR490 million production optimization and predictive analytics Multiples Alternative Asset Management has ($7.3 million) for a 49% stake in Prathamesh for conventional and unconventional reservoirs. agreed to invest INR7.4 billion ($110 million) in Solarfarms, a vehicle set up by Suzlon to develop Arvind Fashions, the branded apparel distribution a 50 megawatt project in Telangana. Jungle leads Series A for arm of listed Indian textile manufacturer Arvind. Thailand’s Pomelo It will take a 10% stake in Arvind Fashions, which Ather raises $31m for will use the capital to support future growth Jungle Ventures has led an $11 million Series initiatives. electric motorcycles A round of funding for Thailand-based online Indian motorcycle giant Hero MotoCorp will fashion retailer Pomelo. Existing investors, Actis platform to buy solar invest about INR2 billion ($31 million) in domestic including 500 Startups and Fenox Venture VC-backed electric vehicle (EV) start-up Ather Capital, also participated in the round. The Series asset Energy. It follows a $12 million investment last A follows a commitment earlier this year from Ostro Energy, an Indian renewable energy year by Tiger Global Management. Hero will take Indian venture debt firm InnoVen Capital and a platform backed by Actis Capital, has agreed to a 26-30% stake in the company in an effort to $1.6 million pre-Series A round in 2014 also led buy a solar project owned by Suzlon Energy. The enhance its existing EV development program. by Jungle.

Number 41 | Volume 29 | November 01 2016 | avcj.com 5 COVER STORY [email protected] Ethereal frontiers As blockchain segments mature in Asia, private equity and venture capital investors will benefit from a range of new entry points. Pitfalls related to the technology’s obscure nature, however, will persist

TWO RECENT PE INVESTMENTS INDICATE revolutionize the exchange of assets. increases in complexity with each transaction. that Asia’s blockchain space may be on the Information has always been intangible, and “Often when people say they’re building a cusp of a new development phase driven by a therefore well suited to this style of networked blockchain, they really just mean they’re building migration of talent and ideas from West to East: a medium, but stores of measurable value – like a secure database that makes use of many of $5 million Series A round for Coins led by Quona bills of lading for cargo shipments or documents the characteristics that bitcoin has proven to Capital, and a $60 million commitment to Circle relating to property titles – have become work,” explains Leonhard Weese, mentor at from a group of international investors including digitized only relatively recently. The dawn of SuperCharger Fintech Accelerator and president China Everbright. blockchain accordingly offers a means of re- of the Bitcoin Association of Hong Kong. The companies have different target markets writing rules on the distribution of wealth while Since its inception, blockchain has only – Coins is focused on the Philippines while Circle simultaneously intersecting political, financial attracted about $1.5 billion of investment. At wants to boost its presence in China – but their and industrial structures in ways yet to be first, activity focused on digital currency mining, fundamental attractiveness is rooted in their US clarified. wallets and exchanges, with VC funding for credentials. Expertise in blockchain is hard to Any technology with this level of vaguely bitcoin start-ups topping out at just over $200 come by globally, and Asia is understood to be alluring disruption potential deserves a good million in early 2015, according to CB Insights. behind the curve in knowhow development. creation myth, and blockchain certainly This surge of interest precipitated a dramatic The funding for Coins and Circle suggests that delivers. The system was first developed as a drop-off to $25 million of investment by mid- the region’s increasingly crowded ecosystem of 2015, which has been interpreted as an inflection blockchain-supported financial services start-ups point in the industry’s natural hype curve. is ripe for diversification. “Most of what you “I think that we are on the slope of This influx of Western leadership is setting the enlightenment,” says Jeremy Liew, a partner at stage for an expanded range of business models read in the news about Lightspeed Venture Partners, which has backed that fall under the Asian blockchain umbrella. In blockchain is just China’s largest bitcoin exchange, BTCC. “The the US and Europe, blockchain start-up activity initial peak of inflated expectations was driven already stretches beyond financial services, financial institutions by the expectation that the primary use-case but the technology’s initial boom in Asia has for bitcoin was to reinvent payments in the remained anchored in banking and payments. playing around with developed world, and for trading, and that this The rationale is that by building up a competitive the technology, but would happen fast. This has largely proven out to environment of similar companies, some will be wrong.” eventually sprout branches into other sectors. they don’t have any The second phase of investment has been “A year ago, blockchain wasn’t something the characterized by a shift toward non-bitcoin young, hungry entrepreneurs were after in Asia, hope of bringing that financial applications of blockchain technology, but now you’re starting to see the talent here,” to the market” – Kevin Loaec which either tap into the original bitcoin system says Scott Likens, PwC’s emerging technology or exploit a separately programmed protocol. lead in Hong Kong. “Because of the draw of These investments have been led by corporates financial centers like Singapore and Hong Kong, ledger for bitcoin transactions, and as such, and financial institutions aiming to improve fintech is going to lead the way on investments, was mysteriously invented in 2008 by Sathoshi online and mobile transactions in fiat currencies. but the VCs see industries that are not financial Nakamoto, the pseudonym for one or a number The fastest growth area, however, has services as quicker and less regulated with of programmers who remain unknown. been the use of blockchain as a system for fewer companies at play. There are hundreds This esoteric backdrop fueled a culture of recording adjacent non-monetary transactions. of blockchain start-ups around payments and libertarian thinking and idealism among early Chainsmiths, an Ireland-based blockchain currency, so it becomes a more difficult question adopters who were eager to avoid repeating consultancy that already services half its client of where to put your money.” the economic missteps that led to the global base outside of the financial sector, ties this financial crisis. It also set up the proliferation of evolution in part to the shortcomings of Bitcoin beginning one of the more misunderstood technologies to versus industrial players when it comes to The ongoing emergence of blockchain attract institutional funding. commercializing prototypes. technology is commonly promoted as The core interest of blockchain is not so much “Most of what you read in the news about representing an opportunity similar to that of its free-to-use, dis-intermediated computational blockchain is just financial institutions playing the internet in the mid-1990s. As the internet resources as its emphasis on cryptography. The around with the technology, but they don’t have allowed for the secure, free and instantaneous technology validates transfers by authenticating any hope of bringing that to the market,” says exchange of data, so does blockchain promise to a chain of timestamped units of data that Kevin Loaec, managing director at Chainsmiths.

6 avcj.com | November 01 2016 | Volume 29 | Number 41 COVER STORY [email protected]

“It’s very hard to bring innovation to finance and remittances cannot be as easily dismissed by problems. For example, Chainsmiths’ Loaec because there’s so much regulation. That has bureaucracy-wary investors. cites a common investment thesis related to always been the case, and blockchain isn’t going “Blockchain has very diverse applications, using a blockchain to streamline electricity to change that.” but if we make another investment in the payments – a concept that does nothing to solve technology, it’s definitely going to have some the underlying problem of customers illegally Non-financial applications connection with fintech,” says James Pan, a tampering with their meters. Early signs from the West that the future of the member of China Everbright’s management “Blockchain can be applied to all industries technology is in non-financial industries also decision committee. “Blockchain is not the but most of the use-cases don’t work,” he says. include the diversification of specialist VCs such only technology for coming up with payment “Probably 95% of all the people that talk to us as US-based Blockchain Capital, which backed solutions – which is the clear trend – but based shouldn’t be on a blockchain because they don’t BTCC alongside Lightspeed but now counts a on our due diligence so far, it’s the most reliable.” have the right approach to the technology. third of its portfolio outside of banking services. The performance standard of this type of Most of the time, the problem is about physical For example, the firm has invested in Wave, an database is difficult to overstate. The most robust elements in the real world and has nothing to do Israeli company that uses blockchain to allow blockchain is the original bitcoin system, which is with blockchain.” cargo vessels to send highly sensitive inventory said to have up to eight times more computing Due diligence should otherwise focus titles across a decentralized network. power than the world’s top 500 supercomputers on confirming the expertise of the targeted technical team, especially in light of the supply- demand imbalance for top-notch blockchain Bitcoin and blockchain venture capital funding talent. For China Everbright, the decisive factor 250 in its decision to back Circle was the company’s status as the New York Department of Financial 200 Supervision’s first “BitLicense” recipient and the only digital currency play to receive an e-money 150 issuer license in the UK. “The technology is new and unfamiliar, so 100 US$ million investors don’t usually have much experience in the space. This makes it more difficult to assess a 50 team’s credibility and whether their product has 0 any real value,” says Josh Stark, head of operations 2013 2014 2015 2016 at Canada-based blockchain consultancy Ledger Bitcoin start-ups Blockchain start-ups Labs. “Investors need to have a clear thesis on Source: CB Insights where they believe the technology and market is heading. That’s true of any investment, but in this space, credible answers that get beyond the “We see a lot of interesting start-up activity combined. In the context of Asia’s large hype are much harder to come by.” around reimagining the bitcoin blockchain as an population trends, this resource is increasingly Both the financial and non-financial immutable record,” says Bart Stephens, managing seen as an indispensable settlement solution. service angles in blockchain are relatively well partner at Blockchain Capital. “Many people “Asia is a very exciting and robust market, understood by PE investors with experience tend to think of the blockchain industry as part and we’re bullish on the developing economies developing enterprise software for clients. The of fintech, but we really see it as an evolution in and their adoption of blockchain technology,” value proposition at the cryptocurrency end computer science that will impact and alter not Blockchain Capital’s Stephens adds. “There of the spectrum, however, is less immediately just financial services but government services, are about three billion consumers with a recognizable. In this area, it is harder to plot the healthcare, legal services, international trade, smartphone in their pocket who can essentially future evolutions of the market, how bitcoin will shipping and logistics. We see a lot of our future leapfrog the paper, plastic and physical perform as a currency, what trends will redirect activity in those areas.” branch-based products you see in the West into its exchange platforms and in which countries. Although Asia has not yet followed this lead, bleeding-edge financial services that are ultra- Investors may overcome this lack of visibility it is expected to catch up quickly on the back of secure and ultra-cheap.” through exposure to wallets, which monitor a number of technocratic drivers. Digital transfers digital currency transactions across different of any kind in Asia remain subject to foreign Finding value geographies in real time. Keeping company burn exchange and border-control complications that As investment targets in this space multiply, rates low is also essential to ensuring there will have already been resolved in the US and Europe. one of the key challenges for GPs is identifying be enough dry powder available to react when Countries in the region must also contend viable use-cases. One rule of thumb is to focus the inevitable black swan event starts moving with a much broader range of technological on monopolies such as insurance or taxation the market. competency in cross-border trading, adding on controlled goods. This is because businesses “Bitcoin companies are like surfers. You can’t appeal to the simplifying architecture of in these fields are dependent on a single point make a wave – you have to wait for it to come,” blockchain. of failure and become more secure when a says Lightspeed’s Liew. “But when it comes, you The primary driver of Asia’s potential, decentralized network diffuses the trust and risk. can make sure that you’re pointed in the right however, remains its massive and fast-growing Another point of consideration is to avoid direction, well positioned, and you can paddle consumer markets. As such, the scaling upside of business plans that are attempting to apply hard. And if you get it just right, you can catch a blockchain business models related to payments the technology as a solution for non-technical really great ride.”

Number 41 | Volume 29 | November 01 2016 | avcj.com 7 29TH ANNUAL The 29th Annual WEEKS AVCJ Private Equity & Venture 2TO GO Forum is the largest and REGISTER most influentialgathering of NOW! private equity and venture professionals in Asia.

We are delighted to announce that the 15-17 November 2016 AVCJ Forum Event App has just been released! Four Seasons Hotel, Hong Kong The Event App is already facilitating pre-event networking with registered delegates. This year’s 29th Annual Forum will take place in two weeks’ time on 15-17 November 2016 at the Four Seasons Hotel, Hong Kong.

Tickets are selling fast! Book today and connect with 1,000+ attendees including 550+ investors ahead of the conference.

・ ・ ・ ・ ・ ・

Customer Enquiries: Email us at [email protected] Registration Enquiries: CALL Pauline Chen on +852 2158 9655 Full details available at Sponsorship Enquiries: avcjforum.com Darryl Mag T: +852 2158 9639 E: [email protected]

avorumom

avcjforum.com Join your peers #avcjforum 29TH ANNUAL The 29th Annual WEEKS AVCJ Private Equity & Venture 2TO GO Forum is the largest and REGISTER most influentialgathering of NOW! private equity and venture Lead Sponsors Asia Series Sponsor professionals in Asia.

We are delighted to announce that the 15-17 November 2016 AVCJ Forum Event App has just been released! Four Seasons Hotel, Hong Kong The Event App is already facilitating pre-event networking Co-Sponsors with registered delegates. This year’s 29th Annual Forum will take place in two weeks’ time on 15-17 November 2016 at the Four Seasons Hotel, Hong Kong.

Tickets are selling fast! Book today and connect with 1,000+ attendees including 550+ investors ahead of the conference.

Legal Sponsors

・ PE Leaders’ Summit Sponsors ・ ・ ・ ・ VC Summit Sponsors VC Summit Legal Sponsor ・

LP Summit Sponsors

Customer Enquiries: Awards Sponsors Networking Coffee Break Sponsors Email us at [email protected] Registration Enquiries: CALL Pauline Chen on +852 2158 9655 Full details available at Sponsorship Enquiries: Exhibitors avcjforum.com Darryl Mag T: +852 2158 9639 E: [email protected]

avorumom avcjforum.com Join your peers #avcjforum avcjforum.com Join your peers #avcjforum FUNDS / DEAL OF THE WEEK [email protected] Blume gets early-stage boost

BLUME VENTURES’ VISION HAD GROWN and narrowing its investment preferences. “They’re not necessarily going to attack beyond what its check sizes could deliver. The With almost three times as much capital American markets, but they will at least go and early-stage VC firm gained exposure to a wide as the previous vehicle, Fund II is expected build a significant presence in regional markets range of Indian start-ups through its first fund to give Blume considerably more financial in and around Asia,” says Reddy. “And we’ve seen and already achieved some successful exits, muscle. Whereas in previous investments the some success already. We think some of our including the sale of Taxiforsure to Ola and the GP committed up to $250,000 in pre-Series biggest returns are going to come from that purchase of Zipdial by . A rounds for stakes of 7-8%, now it can go as space.” But spreading the INR1 billion ($22 million) high as $500,000. Blume is also planning more The new vehicle also gave Blume the chance corpus across several dozen companies meant follow-ons, with over 60% of the to broaden its LP base. As much it often had only a very small claim on the corpus earmarked for additional as $40 million of Fund II comes proceeds. contributions to investees up to from overseas investors – about “We realized that we had very little control Series A round. It will continue its half of whom are based in the US over our positions in those companies when we strategy of finding co-investors – in contrast to Fund I, which was were sitting in the single digit space. And even to come in alongside it on deals, mostly raised from Indian LPs. The though we had good exits, they hardly moved including in follow-on rounds. GP sees this as a welcome step the needle in terms of absolute dollar returns,” Technology remains the key toward building a stronger profile says Karthik Reddy, managing partner at Blume. focus. The new fund has already Early stage: Broader base among both LPs and investees. Having recently closed its second fund, Blume made more than 25 investments “We just needed larger Ventures Fund II, at $60 million, the GP now plans in companies such as retail technology developer support, and since this is the foundation for what to build on the experience gained in the first SnapBizz and health and fitness app developer we hope will become a series of institutional vehicle. Rather than spreading itself thin to gain HealthifyMe. Most deals will concentrate on the funding-led future funds, that meant that we had exposure to a wide variety of businesses in the consumer technology space, but the firm also to look at building a considerable international tech space as it has before, Blume will focus on expects its business-to-business portfolio to base as opposed to relying entirely on domestic obtaining bigger stakes in portfolio companies deliver considerable success. capital,” says Reddy. J-Star helps Asiro bring law online

JAPANESE ENTREPRENEUR HIROTO traditional focus areas: transition planning. While capital, but on the other hand, as a temporary Nakayama saw his country had a problem: too Nakayama was still in his 40s and not looking to shareholder, our goal is to train the company to many lawyers with nothing to do. Government retire from the company, he also believed that make it strong. He liked this concept,” Hara says. reforms launched in 2001 had worked well he would not be able to build the business to J-Star’s plans for Asiro include helping it to enough, raising the number of private lawyers the scale he envisioned without outside capital. diversify its appeal. Currently the site’s content is from 17,000 to 37,000 as of April 2016. But the Selling to another company was not attractive focused on traffic law, though lawyers also offer population had mostly failed to take advantage since it would require him to other services, such as divorce, of the abundance of attorneys, preferring to give up too much control to inheritance, bankruptcy and stick to traditional informal methods of conflict the buyer, and an IPO would criminal law. The GP wants the resolution. likely not attract much attention company to raise the profile of With younger lawyers bearing the brunt because the company, while these options. of the job shortage, Nakayama spied an solid, could hardly be considered Hara is confident in Asiro’s opportunity, founding the media platform Asiro trendy. future as a part of Japan’s legal as a place where independent law firms and Bringing in a backer like scene, citing its appeal to attorneys could advertise their services. Staff J-Star – described by Hara as a Attorneys: Internet connection younger customers who are writers create articles on legal issues, written for “solution capital provider” that comfortable with obtaining laypeople, to attract ordinary readers who can typically invests JPY1-10 billion ($9.5-95 million) professional services online and its ability to then connect with lawyers through the site. per transaction – seemed the best fit. Hara outmatch the competition in content. “Many “Generally speaking, lawyers are not pitched the firm to Nakayama as a partner that newcomers need to pay Google to secure a salespeople. Obtaining customers may be their wanted to enhance Asiro’s ability to succeed on space in the search engine,” he says, noting that biggest goal, but they don’t have the capability,” its own, rather than an owner that would use the Asiro has never had to do so. “It becomes an says Gregory Hara, CEO and managing partner of company as a means to its own ends. entry hurdle for the other players. So once Asiro J-Star, which recently bought Asiro. “We’re a shareholder with a great captures good content in a certain area, then its J-Star saw the company as a play on one of its understanding of the business, and we have position is relatively stable.”

10 avcj.com | November 01 2016 | Volume 29 | Number 41 XIAOLIN ZHANG | INDUSTRY Q&A [email protected] Dealing in debt Xiaolin Zhang, co-founder and managing partner at China-focused distress specialist Shoreline Capital, discusses the NPL opportunity and what private equity firms must do to address it

Q: Shoreline’s third fund closed at from the AMCs, banks or law small. We will commit capital to $500 million in mid-2015 (and firms. In addition, we are growing their funds and jointly invest in was followed by an overflow our network of local third-party deals. vehicle of $200 million). What service providers from 50 to 100. does the speed and nature of This nationwide platform will Q: How do you manage these deployment say about overall help us source NPL transactions. portfolios once they have trends in the market? been acquired? A: We focus on three investment Q: What do you think of the A: Before we buy NPLs, we conduct categories: structured finance, government initiatives thorough due diligence on special situations and non- intended to help address the the borrowers, guarantors and performing loans (NPLs). We NPL problem, such as debt- registered collateral in order to have fully invested Fund III for-equity swaps? set a meaningful purchase price. and the additional capital we A: The debt-for-equity swap “There are many If the collateral is factory facilities, raised, with approximately $700 initiative shows the government for example, we have to evaluate million deployed over the last 12 is looking for solutions, and ways to collect how much we can generate months. Most of it went into NPL Shoreline can benefit in that it repayment; if we liquidate those assets deals. We have accelerated our can extend our business lines. in the future. We have built a pace of deployment in response There are potentially high-quality the key point is database that tracks land supply to the market opportunity. As companies in financial difficulty and turnover rates in different China’s economic growth has that we can restructure after whether you can provinces and cities, which slowed in the last few years, the swapping their loans for equity. generate a profit helps us to price the underlying volume of NPLs accumulating However, a professional team assets. In terms of collecting within the banking system with deep legal knowledge is by doing this” debts, we negotiate terms with has been huge. The publicly necessary to properly evaluate the borrowers or go through disclosed NPL ratios of China’s and execute debt-for-equity to mitigate the impact. As for court processes to liquidate commercial banks doesn’t tell swaps. We have plenty of local currency transactions, we the collateral assets. Another you exactly how serious the experience handling such legal have participated in some. option is to convert these debts situation is, because many issues but we would still invite into equity and run a company more NPLs will emerge next industry experts and external Q: How much competition does yourself. There are many ways to year. Typically, they will involve partners to work with us on Shoreline face? collect repayment; the key point struggling industries, such as deals. A: We are still the leading player in is whether you can generate a mining companies in northwest China’s distressed debt space, profit by doing this. China. Banks are under pressure Q: What complications are there but I have seen more newcomers to offload these bad loans. for US dollar-denominated on the US dollar side and the Q: Shoreline has seen some investors chasing NPL deals? renminbi side in the last year. We team turnover, including Q: How easy is it to get access to Do you also have renminbi- can’t expect to be the only large the departure of co-founder NPL portfolios? denominated pools of capital? player as the market matures. Ben Fanger. How have you A: Shoreline is the largest player in A: It was hard for us to operate in A number of international addressed these issues? the NPL and distressed market this space when we invested investors have expressed an A: As a result of Ben’s departure, six in China apart from the big four our debut US dollar fund. But interest in investing in this space. other people have left Shoreline, asset management corporations we have built a strong deal- I don’t see them as competitors and they are all bound by a (AMCs). In the previous cycle, we sourcing and investment but rather as potential partners two-year non-compete clause. were the most active investor platform over the last 12 years, because Shoreline has a level The biggest loss was to our in the NPL space so we have which has made things a lot of localization they cannot investor relations function – four cultivated close relationships easier. More recently, Issues match. On the US dollar side, people left from that team, while with banks and AMCs. Some such as repatriation of capital we have previously partnered we have lost only two from the banks contact us directly and and renminbi depreciation have with Oaktree Capital on some investment team. We are in the arrange transactions that are become concerns for US dollar co-investments. On the renminbi process of rebuilding our LP nominally routed through investors, but we believe these side, several local service relationships and we are actively AMCs. We have more than 40 are temporary and there are providers have tried to raise looking for an investor relations employees, most of whom came financial tools that can be used independent funds but they are partner to lead that function.

Number 41 | Volume 29 | November 01 2016 | avcj.com 11 GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY

17th Annual Private Equity & Venture Forum India 2016 6-7 December • Taj Lands End, Mumbai GROUP DISCOUNT Early confirmed speakers are available for include: 3 or more! Sanjay Nayar Ajay Relan Padmanabh Member and Chief Founder and Chairman (Paddy) Sinha Executive Officer CX ADVISORS LLP Managing Partner - KKR INDIA Private Equity TATA CAPITAL Peter Martisek Sanjay Kukreja Rahul Bhasin Director Managing Director Managing Partner BLACKROCK PRIVATE CHRYSCAPITAL BARING PRIVATE EQUITY EQUITY PARTNERS PARTNERS INDIA … and many others! List of confirmed attendees in 2015: • Aberdeen Asset • Management Corporation • Elara capital • Intel Capital India • NDB Zephyr Partners • SME Invest Fund Management (bcIMC) • EMPEA • International Finance Lanka Green Capital • Abu Dhabi Investment • BRKINS • Everstone Capital Corporation (IFC) • NewQuest Capital • Authority • Canada Pension Plan • Future Fund • IREP Credit Capital Partners Private Equity • Aditya Birla Capital Investment Board • GE Asset Management • IvyCap Ventures • NowFloats • State Government of Advisors • Capital Dynamics • Greater Pacific Capital • Jacob Ballas Capital India • Oman India Joint Victoria, Australia, • ADV Partners • CDC Group • Green Capital • JM Financial Institutional Investment India office • AlpInvest Partners • CDPQ Singapore • Hamilton Lane Securities Fund • Strategic Assets Partners • Altius Associates • Ceylon Guardian • HarbourVest Partners • Khazanah India Advisors • Ontario Teachers’ Pension • Tata Capital Growth Fund • Ark Capital Investments Investment Trust • HQ Capital • KKR Plan • Tata Opportunities Fund • Asia Alternatives • ChrysCapital • HSBC • Lookup • PGGM • Temasek Holdings • Asian Healthcare Fund • Claris Lifesciences • Hungama Digital Media • Los Angeles County • Premji Invest • Templeton Emerging • Assicurazioni Generali SpA • Clearwater Capital • IBOF Investment Employees Retirement • Qatar Investment Markets Group • Axiom Asia Private Capital Partners Management Association Authority (QIA) • Tokio Marine Asset • Bain Capital • Coller Capital • IDFC Alternatives • Milestone Capital Advisors • Quilvest Management • Baring Private Equity • CPP Investment Board • IL&FS Infra Asset • Mizuho Securities • Samena Capital • TZW Assets Holding Partners India • DBS Bank Management • Mope Investment Advisors • SBI LIfe Insurance • University of Rochester • BASF • DEG - German Investment • IL&FS Investment • Morgan Creek Capital Company • Vaatsalya Healthcare • BlackRock Private Equity and Development Managers Limited (IIML) Management • SBM Capital • Wayzata Investment Partners Company • Indian Private Equity & • Alternative Management Partners • Blume Ventures • Venture Capital Investment Partners • SBM Securities • Wilshire Associates • British Columbia • Duff & Phelps • Association (IVCA) • Mubadala Capital • SEDCO Capital • Wood Investment Partners Investment • EduKart • InnoVen Capital • Nationwide Insurance • Sen • Zephyr Peacock India

Registration enquiries: Pauline Chen Sponsorship enquiries: Anil Nathani T: +852 2158 9655 T: +852 2158 9636 E: [email protected] E: [email protected] Enquiry

Asia Series Sponsor Co-Sponsors

Knowledge Partners Cocktail Reception Host Education Sponsor

®

avcjindia.com Join your peers #avcjindia