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YOUR GUIDE TO WEALTH-CREATING AND KEEPING IT MONDAY, DECEMBER 10, 2012MONEYPOST The high-risk, high-return world of angel investing >PAGE 4 Wing and a prayer WHEELOCK: HOT OR NOT? >PAGE 7 Illustration: Emilio Rivera PENNY-PINCHER’S GUIDE TO PLEASURE >PAGE 12
4 COVER STORY Angels on the Investors are again betting on start-ups in the mainland, says Tiffany Ap F our squares on a phone screen show photos of four women. Tap the one you like and profiles appear showing age, occupation, education, and current location: a 27-year-old dentist and a 23-year-old garment buyer in Beijing; a 24-year-old designer in Hong Kong, and a 32- year-old sales executive in Taiyuan. Tap the application to reveal the background of your photo-based choice, and a photo of your background-based selection. Whom should you message? One knows Will, your college friend, while the other works at the same company as your roommate, Peggy. This is Qiuqiu, or “cupid” in Chinese, a dating app that steers users to potential partners. It is the vision of former JP Morgan Chase New York analyst 27-year-old Michael Lewis, who moved to the mainland to chase his start-up dreams. Daters have three categories to Michael Lewis, co-founder of Qiuqiu (screen shot below), says mainland investors are more conservative than their Western counterparts. Photo: K.Y. Cheng assess: appearance, background and people they know in common. “It’s more in line with how people won’t look at any opportunity under estimates the investment is now highly motivated, although they naturally meet,” says Liuzhou-born US$1 million. worth HK$25 million. require some education,” he says. Lewis, who emigrated to the US Because angel investors come in Most of the start-up activity Top-tier academe like Tsinghua aged six. “If you have 10 friends, and those 10 friends each have another early, taking risky bets on firms that have yet to establish themselves, involves technology, in general, and the internet, in particular. Hong I think that a lot and Beijing University churn out graduates much as Stanford serves 10 friends, that’s 100 people you can they typically get to buy into the Kong investors are lucky to be sitting of people invest Silicon Valley, creating an ecosystem meet. It’s quite exponential.” company at a low price. The pay-off on the doorstep of the perhaps the ripe for Chinese entrepreneurs. Enormous too: the mainland has the usually in comes in the form of a world’s most promising tech start- because it is a Beijing-based Natasia Guo, world’s largest singles population, estimated at 180 million. share sell-down at the firm’s initial public offering or in an acquisition. up market: the mainland. The mainland lags behind the good thing for the founder of website Nuandao, which specialises in goods with a sharp, To some, Qiuqiu is also an This is high-risk investing. Casey rest of the world in developing web community original design, speaks of an investment opportunity. Rich Lau, the organiser of Startups HK, businesses, but the potential is huge, “anything goes” mentality in the individuals bought a stake in the which brings local entrepreneurs thanks to the population and the SIMON SQUIBB, CEO, NEST capital. She likes the mainland’s firm at an early stage, acting as so- together, says he expects just two growth in consumer spending. The scrappy start-up scene and thinks called angel investors. These are out of 10 start-ups to succeed. mainland is also cranking out scores Silicon Valley is oversaturated. “I’m investors that provide critical capital But the pay-off can be huge. of promising new firms, particularly from the Bay area. Everybody is an and guidance to a promising firm AngelVest, which introduces in Beijing’s Zhongguancun district, entrepreneur there,” she says with just as it is getting off the ground. investors to entrepreneurs, seeks the country’s main technology hub. reference to San Francisco Bay, Such investors are “angels” in returns of at least 10 times an initial AngelVest co-founder David which encompasses Silicon Valley. that they look over fledgling firms investment within 10 years. Chen – who teaches a Beijing Like many mainland start-ups, and nurture them with money and Simon Squibb, of Nest, an University entrepreneurship Nuandao is a Chinese version of a guidance in their early years. Angel incubator which nurtures start-ups, seminar in his spare time – says a successful Western business. It investors fill a crucial niche in that offers an example of how successful wave of entrepreneurs is emerging follows a similar business model to they provide capital to new firms angel investing can be. Eighteen on the mainland, and their ideas Fab, a design-focused online retailer before they are big enough to get the months ago Squibb and partners need funding. valued at US$600 million. attention of professional investors at put HK$1 million into a Hong Kong “There’s interest, especially in The reason for copying a tried- venture capital funds, who generally magazine called Foodie. He the past two years. The grads are and-tested formula is that it’s an
COVER STORY 5eir shoulder easier sell. Investors have a reference point and can also see a way to exit. Although Chinese companies have come up short on innovation, they have excelled at adapting “There are existing business models. “We may fewer angel have copied Fab in terms of business investors, direction, but we’re now pivoting they don’t away from that to solve our users’ take as much unique needs,” says Guo. “Weibo risk, and they copied Twitter but they evolved and invest later. They now they’re more fun than Twitter.” want to see traction Crucially, while the start-up over investing in a scene in Silicon Valley is saturated strong team.” with venture capitalists and it can be This is an opportunity for hard to find decent opportunities, rich Hongkongers looking for a high- mainland entrepreneurs are hungry return investment and who might for money. This is partly because have the stomach for this brand of local investors are less experienced risk. Many wealthy investors from and comfortable with angel-style Hong Kong are entrepreneurs investing. Investors from the themselves, and are therefore in a wealthy: they must have a net worth mainland generally want to see an position to understand the potential of US$1 million or income of more operating business with a tangible of a start-up. than US$200,000 a year in the last product before they commit capital, Those interested in such two years, and a reasonable and many of the tech start-ups opportunities might get in touch expectation to exceed US$200,000 in looking for funding are too with angel clubs such as AngelVest, the current year. conceptual for their tastes. which offer a good entry point. AngelVest generally gives “In California, there are many Launched by Chen and a Harvard between US$100,000 and generations of entrepreneurs and MBA classmate in 2007, it is the US$500,000 in seed money to angel investors, but in [mainland] mainland’s largest angel investment start-ups. It plans to launch a China the cycle only started five to 10 group with more than 60 members. Hong Kong chapter early next year Nest’s Simon Squibb takes a hands-on approach to investing. Photo: May Tse years ago,” says AngelVest’s Chen. It has since invested in 16 mostly aimed at networking Hong Kong Rui Ma, China adviser to tech-related deals, with ideas investors with mainland California-based 500 Startups, ranging from a web service that entrepreneurs, and vice versa. office space in Sheung Wan and an didn’t do well were the ones I hadn’t believes the lack of experienced helps users carpool (Wodache), to Hong Kong investors, of course, initial investment of HK$500,000. spent time on. If you do something angels – she estimates there are 300 fitness software that lets joggers try have already had dealings with the More importantly, it offers plenty part time, you get part-time results.” to 500 active angel investors in out the world’s best running mainland tech story, in 1999-2000, of industry know-how and Angel investors can hope for a China – often results in deals that are locations around the world, thanks when scores of internet firms rushed guidance. Squibb set up his first rich pay-off for their work, but many highly favourable to investors. to simulation in high-definition through IPOs on the Hong Kong company at the age of 24 and has find the role of mentor and of being “The terms investors offer are not video (Paofit). exchange. The experience did not two decades of experience building a part of exciting start-up to be always reasonable,” she says. The group applies strict rules on end well for many, as early investors companies, while his other Nest rewarding in itself. Angel work has a “Instead of a straight equity its invitation-only membership. in Tom.com, PCCW, china.com, partners include a lawyer, a Google large social enterprise element, says instrument, the deal is often more Would-be angels must be hongkong.com, e-kong or veteran, and marketing and Squibb. He notes that rich like a debt. Or they will ask for big recommended by two existing Asiacontent.com can attest. branding gurus. For the first three to Hongkongers have recently become chunks of the company. They might members, and they have to be So, before throwing money at the six months, Squibb says he meets fascinated with investing in car say, ‘If you don’t perform and meet first computer science major with a with the entrepreneurs every day. parking spaces that can be bought targets, you have to give me more bright idea, Chen advises investors After the company has got off the for up to HK$1 million apiece. He shares. I up my stake from 30 per to determine whether they have ground, he meets with them once a says that car parks might provide cent to 50 per cent without putting experience in, and an understanding week, usually over coffee or lunch. reasonable financial returns, but in more money.’ ” of, the business they are looking to Although he recognises that result in nothing exciting. “If you put It’s a supply and demand issue, invest in. “If you’re a doctor and many angel investors can only that into an entrepreneur, imagine Ma believes. Fewer early investors make for greater leverage. “As more investors emerge, it will become normalised,” she says. Lewis says mainland tech start- 300 • The number of angel investors invest in a gaming company, I’m not so sure,” says Chen. Investors also need to be ready to take on an advisory role. “It’s not a passive investment like property – commit spare time to a company, being involved is the smartest way to invest, he says. “I learned, by losing money, that I have to be in the businesses a little bit more. I started what they could do,” he says. “People invest to make a return and that’s certainly what we do; I’m not shy about that. But I think a lot of people invest because it’s a good ups are starved of capital because estimated to be active on the you invest, and then you’re like everyone else, having a day job thing for the community. You’re many local investors are reluctant to mainland, where investors mentoring and connecting,” says and angel investing on the side. Fast helping a human be successful, feed put money into unproven entities. prefer more established Lau of Startups HK. forward five or six years, and I had their family, helping the city. That’s a “Investors in China are a lot more companies The Nest group is nurturing 10 companies that did well and ones lot more interesting than a car park.” cautious than in the West,” he says. young companies, giving them that didn’t do so well. The ones that firstname.lastname@example.org