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2845AVCJ12012015.pdf
1. Asia’s Private Equity News Source avcj.com December 01 2015 Volume 28 Number 45
PROFILE
DEAL OF THE WEEK
Top of the world?
ChinaVC firms seek additional capital to reach into the growth stages Page 7
Cross-border angel
Huoy-MingYeh’s China-USVC adventure Page 14
Connected classes
IFC, Everstone support digital education Page 12
Transparency, timing of
entry are key to cracking
venture secondaries
Page 11
Partners Group to back
Aiyingshi’s cross-border
acquisition initiative
Page 12
Data file Page 15
Southeast Asia: A shallow
PE fundraising market
Page 3
Bain, Carlyle, Cathay,
EMR, Hastings,
Highlight, Mitsui,
Northstar, NSSF, RRJ,
Sequoia, SoftBank,
TPG, Warburg Pincus
Page 4
DEAL OF THE WEEK
AVCJ RESEARCH
EDITOR’S VIEWPOINT
NEWS
FOCUS
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4. avcj.com | December 01 2015 | Volume 28 | Number 45
4
GLOBAL
Warburg Pincus closes
global fund at $12b
Warburg Pincus has closed its latest global fund,
which will seek investments in companies at all
stages of development, at the hard cap of $12
billion. It will focus on sectors such as energy,
financial services, healthcare and consumer,
industrial and business services, and technology,
media and telecom.
ASIA PACIFIC
AVCJ journalists win
awards
Asian Venture Capital Journal was honored at
the 2015 State Street Institutional Press Awards,
Asia Pacific. Winnie Liu, associate editor at the
publication, won the Journalist of the Year
- Financial Literacy award, while Staff Writer
Holden Mann won the Award for Best Newcomer
and was highly commended in the alternatives
category. Managing Editor Tim Burroughs
was highly commended in both the financial
literacy and alternatives categories and won the
Journalist of the Year - Regulation award.
AUSTRALASIA
TPG, Carlyle complete
Healthscope exit
TPG Capital and The Carlyle Group have
completed their exit from Australian hospital
operator Healthscope, having privatized the
company in 2010 and re-listed it last year. They
sold 308.2 million shares for a reported A$853.7
million ($612 million). The PE firms made previous
partial exits through the IPO and a block trade
worth A$473 million and around A$900 million,
respectively.
GREATER CHINA
Sequoia, Cathay join iKang
take-private bid
Shenzhen-listed healthcare services provider
Meinian Onehealth has teamed up with a
group of investors – including Sequoia Capital
and Cathay Capital Private Equity – to privatize
its US-listed rival iKang Healthcare Group. The
bid, which values the company at around $1.5
billion, is higher than an earlier offer submitted
by iKang’s founder and CEO and FountainVest
Partners.
Ping An, Adamas launch
SME-focused fund
Adamas Asset Management and Ping An Trust
have launched a joint venture fund with a target
of $500 million to invest in growth-focused
Chinese small and medium enterprises (SMEs).
It will leverage Adamas’expertise in structured
finance market and Ping An’s network and staff in
local markets.
Weibo leads $200m round
for video app maker
Chinese social media platform Weibo
Corporation has led a $200 million Series D round
of funding for Yixia Technology, a Beijing-based
mobile video app developer. Sequoia Capital and
South Korea’s YG Entertainment also participated.
The round values the company at more than $1
billion.
HNA invests $500m in tour
operator Tuniu
China’s HNA Tourism Group has agreed to invest
$500 million for a 24.1% stake in Tuniu, a US-
listed Chinese online package tour provider. This
follows two rounds of funding worth a combined
$648 million, with Hony Capital, DCM, Sequoia,
Temasek Holdings, Ctrip and JD.com among the
investors.
Allianz, Baidu, Hillhouse
form insurance JV
Chinese search giant Baidu, German insurer
Allianz and China-based Hillhouse Capital
have formed an internet insurance company
to distribute insurance products in China. It
will apply for a license to sell insurance online
throughout the country, targeting both
individual customers and small and medium-
sized businesses.
CCCC, NSSF set up
infrastructure fund
China Communications Construction (CCCC)
and the National Council for Social Security Fund
(NSSF) have established a RMB15 billion ($2.3
billion) infrastructure fund. The vehicle received
RMB9 billion state-owned CCCC RMB6 billion
from NSSF.
NXP sells power assets to
JAC Capital
NXP Semiconductors, a Dutch chip manufacturer
listed in the US, has agreed to sell its entire radio
frequency power business to Chinese state-
owned private equity firm Jianguang Asset
Management (JAC Capital). The divestment is a
condition for NXP’s proposed takeover of US rival
Freescale Semiconductor.
State-backed China fund
buys stake in ZTE unit
China National Integrated Circuit Industry
Investment Fund, a national fund established to
PE consortium wins $7.5b
TransGrid deal
A consortium featuring Hastings Fund
Management, Caisse de dépôt et placement du
Québec (CDPQ) and the Abu Dhabi Investment
Authority (ADIA) will pay A$10.26 billion ($7.5
billion) for the New South Wales government
electricity transmission network. Hastings will
hold a 20.02% stake in TransGrid, with CDPQ
taking 24.99% and ADIA 19.99%. The other
investors are the Kuwait Investment Authority
and locally-listed energy and infrastructure
manager Spark Infrastructure with 19.99% and
15.01%, respectively.
Rival bids were reportedly submitted by State
Grid Corporation of China in conjunction with
Macquarie, AustralianSuper, and IFM Investors
and Queensland government-owned QIC.
TransGrid is the owner and operator of the
main high voltage transmission network in New
South Wales and the Australian Capital Territory,
connecting generating, distributors and major
end users to the grid. This network comprises 99
bulk supply substations and more than 12,900
kilometers of transmission lines and cables.
The proceeds of the 99-year lease on
TransGrid will be used to pay for schools,
hospitals, public transport and roads. The
government plans on leasing out 49% of the
state electricity network with a view to raising
A$20 billion. The partial lease of Ausgrid is
expected to be completed by mid-2016.
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6. avcj.com | December 01 2015 | Volume 28 | Number 45
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promote the domestic semiconductor industry,
will pay RMB2.4 billion ($376 million) for a 24%
stake in a unit of local electronics manufacturer
ZTE Corp.
RRJ, Value Partners invest
in Logan Property
RRJ Capital, Hong Kong-based asset
management firm Value Partners, and other
investors have committed HKD1.5 billion ($197
million) to Logan Property Holdings, a real estate
development business controlled by Chinese
billionaire Kei Ho Pang. RRJ holds about 5% of the
Hong Kong-listed company.
Renren leads round for US
job search platform
Chinese social networking platform Renren has
led a $22 million Series B round of funding for
Shiftgig, a US mobile marketplace for short-
term jobs. GGV Capital, Chicago Ventures, DRW
Venture Capital, Garland Capital, and others also
participated.
Highlight provides Series A
for eDoctor
Highlight Capital has led a Series A round of
funding for eDoctor Healthcare Communications,
a Chinese start-up specializing in pharmaceutical
marketing solutions. The deal is reportedly worth
tens of millions of dollars.
NORTH ASIA
Japan Post Bank to launch
PE division
Japan Post Bank, a unit of the recently-privatized
Japan Post Holdings, will create a division to
explore private equity investment opportunities.
The division will be led by Tokihiko Shimizu, who
previously was instrumental in the Government
Pension Investment Fund’s (GPIF) push to
diversify its assets and enter the alternatives
space.
VCs provide $6.1m round
for Kabuku
Japan-based Kabuku, manager of 3-D printing
service Rinkak, has closed a JPY750 million
($6.1 million) Series A round with participation
by Global Brain, Dentsu Digital Holdings and
Mitsui Sumitomo Insurance Venture Capital. The
company will use the new capital to expand its
sales and marketing activities.
Japan skills platform gets
$4.4m in funding
Coconala, a Japanese skills marketplace formerly
known as WelSelf, has raised JPY540 million ($4.4
million) in funding from Jafco, Nissay Capital,
SMBC Venture Capital and Voyage Ventures. This
follows a JPY150 million round in September
2013 led by Nissay.
SOUTH ASIA
Bain exits Hero Motocorp
for $117m
Bain Capital has fully exited Hero Motocorp, India’s
largest motorcycle and scooter manufacturer,
selling its remaining stake for INR7.7 billion ($117
million). The PE firm invested – alongside GIC
Private – in 2011 when Hero Group wanted to
buyout its JV partner Honda Motor.
SoftBank leads $120m
round for Grofers
Indian hyper-local delivery service Grofers has
raised $120 million in Series C funding led by
SoftBank Corp. Existing investors Sequoia Capital,
Tiger Global and Apoletto Asia also participated.
Softbank will gain a 30% stake in Grofers.
India plans $1b renewables
fund
The Indian government wants to raise a $1
billion private equity fund focused on renewable
energy, according to Piyush Goyal, minister
responsible for power, coal and renewable
energy. He added that the government would
also seek to raise $4 billion per year over the next
3-4 years for a clean energy fund.
Next Orbit seeks $750m for
VC fund
India-based Next Orbit Ventures (NOV) is
targeting $750 million for its second fund, which
will target the electronics systems design and
management. Ajay Jalan, NOV’s managing
partner, said the firm would raise $300 million by
March of next year and the remainder by June.
Mitsui commits $52m to
Naaptol
Mitsui & Co. Global Investment, the VC arm of
Japanese conglomerate Mitsui, has invested
another INR3.4 billion ($52 million) in Indian TV
shopping and e-commerce platform Naaptol.
Mitsui’s latest investment raises its stake in the
company from 5% to 20%.
SOUTHEAST ASIA
EMR to buy Indonesia gold
mine
Australian resources-focused investor EMR
Capital is leading a consortium that has agreed
to buy an Indonesia-based gold mine from
Hong Kong-listed G-Resources for $775 million,
including debt. The other investors are Farallon
Capital Management and individuals connected
to Wilmar International and the Hartono family,
which owns Djarum Group.
Northstar closes PE, VC
funds
Northstar Group has reached a final close of
$810 million on its fourth fund, which targets
Southeast Asia, with a particular focus on
Indonesia. Meanwhile, the firm’s VC unit, NSI
Ventures, has closed its debut fund at $89 million.
Northstar Equity Partners IV launched in early
2014, with a target of around $800 million and a
hard cap of $1 billion, and it achieved a first close
of $500 million in July of that year. The process
was complicated by a challenging fundraising
environment and uncertainty about the
Indonesia. When Northstar raised its third fund -
which closed in 2011 at $820 million - Indonesia
was on a role, with growth topping 6%. The Asian
Development Bank is projecting 4.9% for 2015.
Northstar entered the VC space last year
when Shane Chesson, previously a technology-
focused investment banker, and Hian Goh, an
entrepreneur best known for setting up the Asian
Food Channel, joined the team. The plan was
to support start-ups throughout Southeast Asia
with Singapore as a hub.
NSI received backing from Temasek Holdings
in the first close of its debut fund. Several other
institutional investors are said to have come in
towards the end after being impressed by the
performance of the firm’s portfolio.
NEWS
7. Number 45 | Volume 28 | December 01 2015 | avcj.com 7
COVER STORY
winnie.liu@incisivemedia.com
THE JOURNEY THAT ENDED WITH CHINESE
online package tour operator Tuniu listing in
the US took eight years. Capital poured in from
venture capital firms, strategic players and
sovereign wealth funds as the company built
the scale required to get traction with American
investors.
Gobi Partners was prominent at the
beginning but less so at the end. The early-stage
investor backed Tuniu’s Series A round in 2008,
contributing $3 million. Another round, worth
$10 million, followed two years later with Gobi
committing $5 million in order to prevent its 20%
stake being diluted. In 2011, Tuniu pocketed $50
million as Highland Capital Partners, Rakuten and
Sequoia Capital joined the investor roster. Gobi
wanted to participate but could not due to a $15
million cap on its deal sizes.
By the time Tuniu completed a Series D or
pre-IPO round last September, its valuation had
jumped 75-fold since the first round. Needless
to say, Gobi did not feature. Even as a public
company Tuniu continues to tap private equity
and strategic investors. Hony Capital led a $148
million investment in December, and then last
week HNA Tourism put in $500 million for a 24%
stake.
“Early-stage investors are quite passive in
a sense that we can’t continue to participate
when a company raises Series D or E expansion
round, going up to more than $50 million. It’s a
pity because we miss some great opportunities
because of our small fund size,”Ken Xu, a partner
at Gobi.“We are thinking about raising a top-up
fund but there are a lot of concerns in terms of
fund size, structure and conflicts of interest for
LPs.”
With an increasing number of start-ups
staying private longer and fueling their growth
with ever larger investment rounds, traditional
VC funds often don’t have the capital to stay
involved on a pro-rata basis all the way to exit.
As a result, an array of sidecar, annex, top-up,
and opportunity funds have emerged in China’s
VC space over the past 24 months, extending
firms’reach into later funding rounds. It raises the
question of whether the fundraising dynamic has
changed forever, or just for now.
Top-up time
A fixture on the US venture scene, top-up funds
fall into two categories: down time and good
time. The first are used when the main fund is
running out of money, exits have yet to come,
and the GP needs additional capital to support
companies. The second, very much the story of
the last two years, are sidecar vehicles formed
when there are ample VC opportunities and
robust LP demand for exposure.
“We weren’t forming a lot of‘overage funds’–
funds designed specifically to supply additional
capital to the most promising of a VC fund’s
investments – in the US for quite some time. We
did some in the late 1990s and we have done
some at other times when the market has been
very strong. To be honest, it’s a recent resurgent
trend even in the US and if you look at today’s VC
market, the same conditions that affect the US
affect China as well,”says Jordan Silber, a partner
at law firm Cooley.“We have started to see
some of the China funds, particularly the dollar-
denominated funds, raising‘overage funds.’”
This phenomenon goes hand-in-hand with
escalating valuations. Competition for VC deals
is becoming more intense as non-traditional
venture investors – including private equity,
hedge funds and mutual funds – enter the
market. It has prompted concern among early-
stage GPs that fear they will not have enough
firepower left to back winners.“The companies
are like their babies. They just want to keep
supporting the entrepreneurs and prevent their
stakes being diluted,”one LP observes.
In China, though, sidecar vehicles are popping
up across the industry, with seed, early-stage and
growth-stage investors on the fundraising trail.
Earlier this year, DCM, Qiming Venture Partners
and Banyan Capital reached final closes on a top-
up fund, an annex vehicle, and a co-investment
fund, respectively. These came several months
after each GP raised a core venture fund.
Terminology can be loosely applied, but an
annex vehicle is generally seen to differ from
an opportunity fund in that it focuses only on
follow-on investments in portfolio companies
from a certain fund. While an opportunity fund
may share this purpose – both allow LPs to retain
exposure to businesses once they have grown
beyond the scope of the main fund – these
vehicles have been known to pursue separate
later-stage deals as well.
For Qiming and Banyan, the driving factor was
faster-than-expected exhaustion of the capital in
their main funds that was held back for follow-
on investments. Qiming raised a $75 million
annex fund tied to its third fund, which closed at
$450 million in 2011 (it has since raised a fourth
vehicle).“When we raised the fund in 2011, we
didn’t anticipate that the rounds would become
so big and absorb our reserve so quickly. That’s
why we raised the annex fund,”says J.P Gan,
managing partner at Qiming.
Banyan’s capital-raising has been even more
concentrated. The GP, which spun out from IDG
Capital Partners in 2013, closed is debut fund at
$206 million in early 2014, raised a $362 million
Extra ordinance
A growing number of ChineseVC firms are raising top-up funds so they can continue supporting portfolio
companies through ever larger growth rounds. Has the fundraising landscape changed forever?
No of funds
China US dollar VC fundraising
Source: AVCJ Research
6,000
5,000
4,000
3,000
2,000
1,000
0
25
20
15
10
5
0
US$
million
Funds
Amount (US$m)
2008 2009 2010 2011 2012 2013 2014 2015YTD
8. avcj.com | December 01 2015 | Volume 28 | Number 45
8
second vehicle 12 months later, and then three
months after that raised $100 million for follow-
on investments in Fund I portfolio companies.
“What we found in 2014 was that it might
be the best time in 10 years for VCs to invest in
high-quality companies. We deployed out debut
fund quickly and didn’t have enough in reserve
to support our portfolio companies,”says Xiang
Gao, a co-founder of Banyan.
GPs also raise sidecar funds in parallel
with main funds, for a variety of purposes.
Morningside Venture Capital first introduced a
top-up vehicle alongside its third fund in 2014.
It raised $412 million across three vehicles,
including an entrepreneurs fund that allows
members of the Morningside network to co-
invest in deals. A similar approach was taken for
Fund IV this year: $400 million for the core fund,
$200 million for a special opportunity fund, and
$60 million for the entrepreneurs fund.
The GP says this structure primarily exists
because of LP demand – in particular, the need
to accommodate endowments and sovereign
wealth funds.
“We want to keep those long-term
institutional LPs in our fund but we don’t want
their large check sizes to impact the performance
of the main fund – which is a small, early-stage
fund. A special opportunity fund solves this
issue, and it doesn’t create added pressure for
us to deploy capital when it is unnecessary to
do so,”explains Ken Shi, a managing director at
Morningside.
Although the special opportunity fund is
intended for follow-on investments in existing
portfolio companies such as smart phone maker
Xiaomi, online real estate platform Aiwujiwu and
online healthcare business Guahao – each of
which is valued above $1 billion – it is now used
to pursue separate later-stage deals as well. Shi
notes that the proportion of the fund earmarked
for these investments is very small.
“We will only invest in companies where we
know the entrepreneurs well. We might miss the
opportunities to invest in Series A, and then we
will come later using the special vehicle,”Shi adds.
The LP angle
When the main fund is raised first and the top-up
fund comes later, a GP would normally require
permission from LPs to proceed with the latter
vehicle. If the LP is convinced by the explanation
of why a top-up fund is necessary and that the
GP can execute the strategy, the next question is
whether the GP has the bandwidth to manage
multiple funds at the same time and retain the
same level of focus. Another consideration is
whether the top-up fund might be favored over
the main fund.
Typically, top-up funds only charge
management fees on called capital, whereas the
main fund charges fees on committed capital.
A GP might therefore be incentivized to deploy
the former more quickly than the latter. The
top-up fund might also receive more attention
because it contains a handful of high-performing
companies that are going to account for the bulk
of the carried interest.
“Conflicts of interest between different funds
are an important consideration, especially if they
have different LP bases,”says Mingchen Xia, a
principal in Hamilton Lane’s fund investment
team.“How do you allocate the economics
or resources in the different funds? It could
potentially lead to conflicts.”
Newly-established Sourcecode Capital is an
example of a GP with different LPs in its main
and annex funds. Having close its debut fund
at $100 million last year and deployed half the
corpus, the firm decided this year to raise a $40
million annex fund. It includes new and existing
LPs, and the terms are the same as for the main
fund.
“LPs in the annex fund want to invest in fewer
companies but ones with clear growth prospects.
All portfolios are selected carefully from the
existing pool,”says Yi Cao, founder and CEO of
Sourcecode.“We haven’t had any complaints.
Existing LPs were invited to participate in the
annex fund and then we turned to new LPs. The
annex benefits LPs in the main fund because it
increase the capital we can invest in portfolio
companies and therefore the influence we have
on them.”
Industry participants suggest two key ways in
which the risk of conflicts can be minimized. First,
have clear investment rules, such as a stipulation
that the top-up fund can’t commit to a particular
company until the main fund has invested a
certain amount of capital. Second, the GP could
raise both funds at the same time.
Morningside and Shunwei Capital Partners
both did this and GGV Capital appears to be
following suit with its latest fund. The Sino-US
firm closed its fifth fund in April 2014 at $620
million and then a top-up fund of $457 million for
follow-on investments in companies from Funds
IV and V closed in May of this year. The GP is now
looking to raise $1.1 billion simultaneously across
three vehicles: a $600 million core venture fund,
a $200 million top-up vehicle, and a $300 million
early-stage fund.
“Some GPs require lock-step commitments,
meaning LPs must subscribe both to the main
fund and to‘overage fund’simultaneously, and
in some cases in a fixed ratio – so whatever your
commitment is, two-thirds of the capital is going
to the main fund and one-third to the‘overage
fund’. This reduces the conflict of interest because
everybody is in the same deal and in the same
ratios. From a GP standpoint, it makes managing
the capital easier. But it does reduce flexibility to
the LPs,”says Silber.
Strategy drift
GGV’s investments range from early-stage to
Series C rounds and industry participants say
the structure for Fund VI delineates its exposure
into different vehicles. Much like Morningside,
by splitting the fund into three parts, no single
component can become too big. At the same
time, it does represent a broadening of the
strategy. Rather than start at Series B or C, GGV
will consider more Series A deals so it can enjoy
the maximum value appreciation as the next
generation of start-ups build scale.
Strategy shift – or strategy drift – is a concern
for some LPs as they see top-up funds move
towards later-stage investments. The suspicion
is that GPs are simply taking advantage of a hot
market to boost assets under management as a
means of generating more fees.
“GPs have a variety of reasons for raising
top-up funds. They may raise a separate pool of
capital to target later or earlier stage investments,
or increase investment in specific segment they
see opportunity. In many cases, they simply raise
additional capital when they can to gain more
COVER STORY
winnie.liu@incisivemedia.com
Select China VCs with top-up fund structures
Manager Main fund Top-up vehicle
DCM Ventures DCM Fund VII (2014) DCM Ventures China Turbo Fund (2014)
Qiming Venture Partners Qiming Venture Partners III (2011) Qiming Venture Partners III Annex Fund
(2015)
Banyan Capital Banyan Partners Fund I (2014) Banyan Partners Co-invest (2015)
Morningside Venture Capital Morningside China TMT Fund IV (2015) Morningside China TMT Special
Opportunity Fund II (2015)
Shunwei Capital Partners Shunwei China Internet Fund III (2015) Shunwei China Internet Opportunity Fund
II (2015)
GGV Capital GGV Capital V (2014) GGV Capital Select (2015)
Source: AVCJ Research
9. COVER STORY
winnie.liu@incisivemedia.com
fire-power,”says Sally Shan, managing director at
HarbourVest Partners.
Shunwei raised $1 billion for its most recent
China fund, split equally between a core vehicle
and an opportunity vehicle. The firm said it not
only wanted to make follow-on investments in
existing portfolio companies but also back new
companies seeking expansion rounds.“Based
on what we have accumulated over the last
few years in terms of industry resources and
knowledge, we have the capabilities to invest
in early- and growth-stage companies,”Tuck Lye
Koh, co-founder and CEO of Shunwei, told AVCJ
at the time.
Clearly, investors were suitably convinced,
and it comes back to the question of motivation
and execution. A VC firm might have a very clear
rationale for raising a top-up fund, for example, it
has identified 10 companies within the portfolio
that are likely to be outperformers and wants to
back them through Series D and beyond. But it
ultimately comes down to whether the GP is able
to pick the right companies and has the capacity
to guide them through later-stage growing pains.
A firm that wants to pursue a growth strategy
alongside a venture strategy – with different
companies in each silo – needs investment
professionals comfortable operating in each
field. Sequoia Capital has run China venture and
growth funds for a number of years and has
separate teams for each one.
“It is dangerous raising a fund if the
companies aren’t doing well. In the growth
stages, the price-to-earning (P/E) multiples tend
to be relatively lower. LPs are cautious that GPs
shouldn’t feel obliged to maintain ownership
by raising top-up funds. If the company can’t do
well, then it won’t do well even if GPs put more
money into it,”an LP observes.
It remains to be seen how far strategies can
evolve before they become unsustainable, and
the answer will vary by GP.“Chinese GPs will be
one of two extremes. Weaker ones will be phased
out from the market because LPs only want to
invest in good GPs,”says Gobi’s Xu.“Those GPs
will use top-up funds to accommodate more
LPs, although sometimes these vehicles are not
consistent with their core strategies. On the other
hand, it gives the GPs more opportunities to try
out new practices.”
Some LPs say they would prefer firms to focus
on a certain stage of venture capital instead of
the full spectrum. However, to a certain extent
they are pulled by the relatively rapid evolution
of the Chinese market – a high-quality GP will
win support for strategic shifts provided it can
justify them in the context of changes in the
broader VC ecosystem.
The caveat is that this momentum might just
as quickly be turned on its head. If top-up funds
exist largely because start-ups are raising larger
private rounds, then their longevity is conditional
on this market dynamic persisting. Not everyone
is of the view that it can.
“I don’t think this phenomenon will sustain.
Top-up funds are market-dependent and there
will be more of them if companies continue to
raise larger rounds, but I doubt that,”says one
China-focused VC investor.“My guess is that you
won’t see many top-up funds in the next two
years.”
“We are thinking about raising a top-up fund but
there are a lot of concerns in terms of fund size,
structure and conflicts of interest for LPs” – Ken Xu
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11. Number 45 | Volume 28 | December 01 2015 | avcj.com 11
FOCUS
tim.burroughs@incisivemedia.com
THE TECHNOLOGY BOOM HAS BENEFITED
VC firms that got in early and have seen the
valuations of their portfolio companies rise with
each consecutive funding round. For secondary
investors looking to pick up assets or fund
interests on the other side, the experience has
been more mixed.
“We have passed on portfolios in the last
couple of years because we couldn’t get
comfortable with valuations,”says Doug Coulter,
partner at LGT Capital Partners.“There is a good
chance portfolios are marked up, maybe on the
basis of later rounds and euphoria, so you may
in fact be paying higher than fair value. With
secondaries, a lot of it is about the price you
are paying, but it is also about the quality of the
assets you are buying. One of the problems with
VC is it’s much harder to assess asset quality.”
Indeed, the pricing for venture capital fund
positions is at its highest in eight years. Greenhill
Cogent noted in its report on secondary activity
in the first half of 2015 that in many cases
pricing is“benefiting from large unrealized gains
subsequent to the record date due to IPOs and
up-rounds of financing at valuation levels that
are significantly higher than the most recently
reported carrying values.”
At the same time, investors are still willing to
pay more for buyout funds. During the first six
months of 2015, the average high bid for buyout
funds was 95% of net asset value. For venture,
it was 82%. The disparity is in keeping with
historical trends and reflects the comparatively
greater risk that naturally comes with
venture capital. It also impacts how different
investors prefer to address the VC secondaries
opportunity.
“You are looking at buying VC fund interests
versus buyout or growth funds where the
outcome by nature is going to be more
dispersed, warranting deeper discounts,”Lucian
Wu, managing director at HQ Capital, says of the
pricing data.“But this shouldn’t be generalized
to apply necessarily in direct situations where
the assets are more concentrated and you have
deeper access to the underlying companies.”
Digging deep
To many, direct positions in tech companies
are preferable to LP interests because they
simplify an already complicated process.
Assessing a VC secondary proposition requires
a somewhat different skill set to PE. Companies
are characterized by multi-class share structures,
follow-on rounds, longer holding periods, and
less proven business models. It may be relatively
easy to draw a conclusion on one asset, but an
entire portfolio presents more of a challenge.
“The process is a few months of due diligence
with detailed visits on the ground of underlying
portfolio companies,”says Paul Robine, managing
partner and CEO at TR Capital.“A lot of large
secondary funds will think only in terms of
discounts. They may not have the time to
perform months of due diligence because they
are in very intermediated situations.”
Of the 25 secondary transactions TR has
completed across its two funds, seven were
venture capital deals, either single assets or
portfolios. The payoff for the extensive due
diligence is a potentially higher return than in
private equity (perhaps a net multiple of more
than 2x versus 1.5x) partly due to the steeper
discounts available for fund positions.
The risk factor – identifying the handful of
winners in a portfolio that also contains its fair
share of mediocrity and write-offs – can be
ameliorated by the timing of entry. Coming in at
year five or six, there is more transparency than in
year two or three.
While HQ Capital is generally more attracted
to single-asset VC secondary deals, the fund
positions it considers tend to involve later-stage
portfolios with companies that offer greater
visibility on revenue and EBTIDA.“It is more
like looking at the situation from a growth
perspective, not a Series A or B where you might
just have a business plan and might be taking
revenue risk,”Wu explains.
Even if an investor gets comfortable with a
venture capital portfolio, there is no guarantee
it will come at the right price. This is usually the
biggest obstacle in any secondaries deal, but the
difficulty is arguably magnified in venture capital
because, as LGT’s Coulter puts it, the asset class
“is in part about hope and expectation.”While
the seller emphasizes rapid growth and exciting
stories, the buyer needs to step back and make a
bottom-up valuation call. It may be that neither
approach is a good fit.
Valuation could also be a point of contention
with the entrepreneurs who control the
underlying portfolio companies.“While they are
not impacted financially, entrepreneurs would
prefer a higher valuation,”says Prashant Mehta,
a partner at Indian VC firm Lightbox.“They don’t
want to be sold at below a certain valuation
because they might be looking to raise new
rounds of capital.”
Industry pipeline
Lightbox was created last year when KPCB
and Sherpalo Ventures ended their India joint
venture, and the local management team spun
out. Several secondary specialists supported
the acquisition of the existing portfolio, while a
separate group of LPs provided $100 million for
new investments. It was followed by the sale of
Canaan Partners’India VC portfolio to J.P. Morgan
Asset Management. In both cases, the LP base
was relatively small and motivated to sell, which
helped facilitate the transactions.
The general expectation is that more venture
capital secondary assets will become available: at
one end of the scale, certain tech companies are
raising capital at ever-higher valuations and some
existing backers might want to exit; at the other,
a lot of VC funds are sitting on portfolios primed
for IPO exits that have yet to materialize.
In addition to India, TR’s Robine sees potential
in China, particularly among financial institutions
that are selling assets for regulatory reasons and
among corporations that are offloading VC units
due to financial or strategic pressure.“When we
started eight years ago this was not the case,
but in the past 12 months we have seen an
increasing number of Chinese sellers,”he says.
How early?
Assessing venture capital secondaries – on a direct or LP interest basis – presents a different set of
challenges to private equity transactions.The key factors are transparency and timing of entry
“It is more like looking
at the situation from
a growth perspective,
not a Series A or B
where you might just
have a business plan
and might be taking
revenue risk” – Lucian Wu
12. avcj.com | December 01 2015 | Volume 28 | Number 45
12
THE RISE OF E-COMMERCE IS REDRAWING
the competitive map for the maternity, baby and
child (MBC) market in China, with a host of online
start-ups getting funded.
AVCJ Research has records of at least four
companies offering a combination of baby
products and social networking raising rounds
of at least $100 million over the course of the
year. They include Beibei, BabyTree and Mia.com,
which between them received more than $500
million.
While some of these are aspiring online-to-
offline (O2O) players, Aiyingshi is going in the
opposite direction, adding an online presence
to a bricks-and-mortar network of 159 stores
across Shanghai, Zhejiang, Fujian and Jiangsu.
Partners Group recently bought a minority
stake in the business – for a sum in the region
of $30-50 million – facilitating an exit for China
New Enterprise Investment (CNEI) and two other
shareholders in the process. It is the firm’s first
direct investment in China.
Kelvin Yu, managing director and head of
China at Partners Group, says he was convinced
by Aiyingshi’s adoption of a two-pronged
approach and the underlying dynamics in the
MBC market.
“Milk powder, diapers and associated baby
products do not account for a significant
proportion of income for families in the first-tier
cities in which Aiyingshi is most
active. The buying decision is
therefore about trust, product
safety and brand,”he says.
“E-commerce sites are good
for selling low to mid-range
products, but for high-end
products that require a higher
customer touch, specialty retail is
the best way.”
All the brands stocked by Aiyingshi are
foreign. Yu expects to see a bifurcation in the
market between high-end specialist retailers like
Aiyingshi and e-commerce, with hypermarkets
that stock a wide variety of products losing out.
E-commerce’s MBC channel share was 19% last
year and this is expected to reach 38% in five
years. While specialty retailers have a defensible
position - their channel share is projected to rise
from 37% to 39% - supermarkets will fall from
11% to 6% and hypermarkets from 25% to 13%.
This industry transition is also expected to
accelerate consolidation. While Aiyingshi is a
market leader, its share of the overall MBC space
is less than 1%.
Partners Group has numerous
portfolio assets around the world
that are relevant to MBC and
most of the premium brands in
this area are of European origin.
Aiyingshi – which was founded
in 1997 by Qiong Shi, who
remains the CEO – wants Partners
Group to make introductions
to potential suppliers and partners. The focus
will be on broadening the category range and
deepening the company’s exposure in existing
categories, bringing products to China that are
not currently available there.
“We have already made a strong effort to line
up potential acquisition targets and targets for
licensing discussions,”Yu adds.
DEAL OF THE WEEK
holden.mann@incisivemedia.com / tim.burroughs@incisivemedia.com
Partners Group targets top-tier baby products
Children: Growth market
FOR THE MANAGEMENT OF S CHAND
Group, a commanding presence in India’s
education publishing market might have been
satisfying enough.
However, as the team surveyed the sector in
2012, they felt that there was far more they could
do. New hardware and software were creating
considerable opportunities for an experienced
education-oriented player like S Chand.
A INR2 billion ($38 million) investment
from Everstone provided the support that the
company needed to explore the possibilities of
digital ventures. Along with the financial means
to acquire educational software developers, the
involvement of Everstone helped bring in more
efficient ways of doing business.
“It was more of a family-run business earlier.
Now I think after the investment we havemade
this organization a lot more professional,”says
Himanshu Gupta, joint managing director of S
Chand.“There are clearer systems and guidelines
to take the company forward, and it has given us
a clearer vision.”
Now the company has gained another
prominent backer, with the conclusion of a new
$27 million funding round ledthe International
Finance Corporation (IFC), which put in $17
million. Everstone put in the rest.
The educational product developer was a
natural fit for the IFC, which
recognized an investment
opportunity that would help it
pursue its goals of promoting
positive economic development.
S Chand, for its part, saw IFC as a
partner with more potential for
global alliances than Everstone.
Though IFC contributed the
bulk of the capital, Everstone still
played a crucial role in the proceedings. IFC is
an LP in the private equity firm’s funds, and this
connection led to the first meeting between S
Chand and the development finance institution.
Everstone’s previous investment gave S Chand
the flexibility to take financial chances that it
could not support with its publishing business
alone. The company’s commitments since
2012 include the establishment of an in-house
connected classroom venture, DS Digital, and
investments in education platform developers
Edutor and Smartivity.
Currently S Chand’s products are used by as
many as 25 million students in India, in almost
25,000 education institutions; the
company hopes to reach 100,000
institutions and 100 million
students by 2020.
With its recent moves in the
digital instruction field, S Chand
wants to become a platform with
multiple forms of education to
augment its historical strengths
in publishing. A willingness to
advance educational technology, supported by
S Chand’s generations of experience in the field,
could result in a formidable lead in the market.
“Books are now becoming more of a hybrid
solution. So a book will not only mean a print book;
they will have other features, like interactive videos,
animations, multimedia and augmented reality,”
says Gupta.“These things will help the students
learn better in their own environments.”
S Chand unlocks digital doors
Education: Books to digital
13. For a live demonstration or to subscribe, please call Helen Lee
at +(852) 3411 4961 or email Helen.Lee@incisivemedia.com
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venture capital and MA markets
AVCJ database is the ultimate link
between Asian dealmakers and those
who provide advisory, financial, legal
and technological services to the
private equity, venture capital and
MA industries. The AVCJ Database
gives subscribers access to more than
125,000 companies and facts and
statistics on over 90,000 transactions.
■ A large profile pool with around 6,800
funds, 3,800 GPs and 3,000 LPs
■ Comprehensive records, including
more than 80,000 MA transactions;
19,000+ PE/VC investments; over
2,400 PE/venture-backed IPOs; and in
excess of 3,400 exits
■ Pan-Asian coverage, including
Australasia and Japan
■ Data that is updated daily and tracked
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Features
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asianfn.com/Research_Database.aspx
Deal Report
NASDAQ listed Focus Media has received a non-binding tender offer of $5.4 per share, or $27 per ADS, of its entire outstanding
common shares from a consortium of investors, including company chairman Nan-chun Jiang, CDH Investments, China Everbright
Limited, CITIC Capital Partners, FountainVest Partners and The Carlyle Group. The consideration would be approximately $2.88
billion based on the 532.95 million common shares outstanding and not held by the chairman.
Announced Date:
Announced (US$mln): Previous Stake:
Deal Stake:
Final Stake:
Company Name Deal Role Industry
Private Equity Buyout
Buy-outs (MBO/MBI/LBO)
Deal Type:
Deal Status:
Stage:
Nationality
17.56%
Involved Companies
82.44%
100.00%
Agreement in Principle
Acquisition Technique:
Acquisition Attitude:
Leveraged Buyout
Neutral
Closed Date: n/d
Aug 12, 2012
Amount(US$mln) Deal Stake
$2,877.9400
Closed (US$mln): n/d
United States
Carlyle Asia - China Investor n/d n/d Private Equity
Hong Kong
CDH China Management Co.,
Ltd.
Investor n/d n/d Private Equity
Hong Kong
China Everbright Ltd. Investor n/d n/d Finance
Hong Kong
CITIC Capital Partners Ltd. Investor n/d n/d Private Equity
China (PRC)
FountainVest Advisors Ltd. Investor n/d n/d Private Equity
China (PRC)
Nan-chun Jiang Investor n/d n/d Unclassified
China (PRC)
Focus Media (China) Holding
Co., Ltd. (FocusMedia)
Investee n/d n/d Advertising
China (PRC)
Fosun International Ltd. Seller n/d -17.20% Steel
United States
Undisclosed Shareholder(s) Seller n/d -65.24% Unclassified
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (Carlyle Asia
- China)
n/d n/d Securities/Investment
Banking
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (CDH China
Management Co.,
Ltd.)
n/d n/d Securities/Investment
Banking
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (China
Everbright Ltd.)
n/d n/d Securities/Investment
Banking
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (CITIC
Capital Partners Ltd.)
n/d n/d Securities/Investment
Banking
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor
(FountainVest
Advisors Ltd.)
n/d n/d Securities/Investment
Banking
United States
Citigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (Nan-chun
Jiang)
n/d n/d Securities/Investment
Banking
United States
JP Morgan Co Inc. Financial Adviser,
Investee (Focus Media
(China) Holding Co.,
Ltd. (FocusMedia))
n/d n/d Securities/Investment
Banking
United States
Morgan Stanley - Beijing
Representative Office
Financial Adviser,
Investor (CITIC
Capital Partners Ltd.)
n/d n/d Securities/Investment
Banking
United Kingdom
Conyers Dill Pearman Legal Adviser,
Investor (Nan-chun
Jiang)
n/d n/d Legal Services
1
Copyright 2012 AVCJ Group Ltd. All rights reserved.
✔ New features on selection
✔ Performance data on exits
✔ Portfolio holding period
Plus
14. avcj.com | December 01 2015 | Volume 28 | Number 45
14
PROFILE
winnie.liu@incisivemedia.com
TO HUOY-MING YEH, IT WAS A CLASSIC
supply-demand imbalance. Having spent six
years in Shanghai managing a VC fund under
Silicon Valley Bank (SVB), she was well aware of
the growing amount of capital in Asia looking for
a home with Silicon Valley start-ups. AngelList,
meanwhile, was always looking for backers to get
the nascent companies on its platform beyond
the angel investor stage.
“The start-ups often raise one round of
funding but find it difficult to raise follow-
on rounds because there aren’t many large
institutional venture capital funds on the
platform. As a result, many leave the platform
and raise further capital from traditional VC firms,”
Yeh explains.“AngelList needed to bring in more
institutional capital to become a long-term player
that supports deals sourced by syndicate leads
and make whole ecosystem more open and
connected.”
She founded Upshot to fill this gap. Its first
fund, worth $400 million, was created earlier this
year with China Science Merchant Investment
Management Group as the sole LP.
The AngelList model begins with a syndicate
lead – usually a successful entrepreneur –
indentifying a start-up he wants to back. He
seeds a syndicate and other angel investors are
able to contribute capital. The syndicate lead and
AngelList get a portion of any carried interest
arising from the investment on exit. Upshot’s
support will enable the best start-ups to raise
more money in less time.
“In the US, companies are taking longer to exit
than originally anticipated and some VC firms are
raising larger funds to support these companies.
These funds don’t deploy too much capital in
the early-stage space because it isn’t worth their
while – it might take the same amount of time
to manage $1 million investment as a $10 million
investment,”Yeh adds. But this is our sweet spot.”
Engineer to investor
Upshot represents a unique cross-border
opening for Yeh, who was born in Taiwan and
was raised there until the age of 15 when she
moved to the US, but also a compromise. While
she has spent her career chasing opportunities,
ambitions have guided – perhaps increasingly
– by considerations beyond work.“Once I had
a family, somehow I felt life had its priority and
focus,”she says.“And you just have to keep focus
on the right things for you. Then everything else
counts.”
A graduate of Wellesley College, Yeh spent 10
years as an engineer before completing an MBA
at the Massachusetts Institute of Technology
(MIT). Her classmates included Kelvin Laws, who
went on to co-found AngelList in 2010.
More significantly, it was at MIT that Yeh got
a first taste of entrepreneurship and a sense of
how technical knowledge and experience could
crystallize into a company rather than just a
product.“When I get out of the business school,
I wanted be an investor,”she recalls.“I wanted to
be with young companies and help them grow.”
After a stint with Lehman Brothers, Yeh set up
PacRim Venture Partners, a small venture fund
based in Silicon Valley. Then SVB came calling and
in 2008 she was dispatched to Shanghai. It was
an agreeable move for the whole family. Yeh’s
husband had a job opportunity in China and they
wanted to raise their daughter, then aged two, in
a bi-cultural environment. SVB’s China operation
was even younger.
“When I first came to Shanghai, my home
was my office,”she says.“I built the team, hiring
people they have there today. I also helped them
raise the first fund. After five-and-a-half years,
SVB Capital had RMB600 million ($94 million) in
assets under management.”
Yeh’s tenure coincided with a push by the
Chinese government for renminbi-denominated
PE and VC funds. SVB was one of the first to
launch one of these vehicles, working closely
with the Shanghai authorities. A combination
of fund and direct investments followed as SVB
became an LP in the first renminbi funds raised
by the likes of Qiming Venture Partners and
Northern Light Venture Capital.
“Now, when you look at Chinese fund
managers, everyone that has a US dollar fund has
a renminbi fund as well, or is at least considering
raising one, because the Chinese government is
strongly encouraging the use of renminbi,”she
notes.“It has actually become a lot more difficult
to deploy US dollar funds in China.”
There and back again
Having moved to Shanghai together, Yeh’s family
departed as a unit in 2014 – a decision partly
driven by a desire to redress the Sino-US balance
in her daughter’s upbringing.“You need to have
people around you, and for my husband and me,
that’s the family,”she says.“As for my career, I want
to follow my passion and mix together all my
experience in China and in the US.”
Despite returning to the US with no job
in place, Yeh was confident she could find
something, having developed a resilience
building the SVB business in China. As a woman
in venture capital, she questions whether it
would have been possible to follow the same
evolutionary path in the US.
“The Chinese market is still developing and
this allows women to come in whereas in the US
venture capital is very much an old boy network
– unless you have been to Stanford Business
School or Harvard it’s very difficult to break in,”
Yeh observes.“When I went to China, Jenny Lee
of GGV, Ruby Lu of DCM and Tina Ju of KPCB were
all there around the same time. We were part of
that wave.”
Institutional angel
Driven by a combination of professional ambition and family considerations, Huoy-MingYeh has
experienced the start-up space in China and the US. She now wants to put this to good use with Upshot
“When I get out of the business school, I wanted
be an investor. I wanted to be with young
companies and help them grow”
15. Number 45 | Volume 28 | December 01 2015 | avcj.com 15
PRIVATEEQUITYDATA FILE | AVCJ RESEARCH
AVCJresearch@incisivemedia.com
PRIVATE EQUITY IN ASIA
Investment Breakdown by Country From January to November 2015
Country Deal Amount ($mln) No. of Deals No. of Disclosed Deals No. of Investee
China (PRC) $43,618.2 896 611 849
Australia $23,939.6 68 51 67
India $14,702.9 515 414 467
South Korea $14,475.5 170 162 168
Hong Kong $3,628.1 27 19 27
Japan $3,042.3 440 306 431
Taiwan $2,524.1 13 9 13
Indonesia $1,180.1 60 22 58
Singapore $936.1 71 53 67
New Zealand $452.1 12 5 12
Vietnam $159.7 12 10 12
Pakistan $141.0 3 3 3
Thailand $79.9 19 13 17
Philippines $78.4 14 6 14
Malaysia $53.8 36 24 35
Cambodia $15.0 1 1 1
Myanmar (Burma) $0.3 1 1 1
CLOSED FUND
Location: Indonesia
Fund Name: Northstar Equity Partners IV Ltd.
Closing Amount: US$ 810 million (final close)
Launch Date: May 2014
Fund Manager/Advisor: Northstar Advisors Pte. Ltd (Northstar Group)
Stage Focus: Buy-outs (MBO/MBI/LBO), Turnaround/ Restructuring
Industry Focus: Agriculture/Fisheries, Consumer products/services, Financial services, Mining and metals, Retail/Wholesale, Telecommunications
Geographical Focus: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), Philippines, Singapore, Thailand, Vietnam
Contact: Sandy Hokijanto
Phone: (65) 6229-8613
Email: sandy.hokijanto@nsgroup.com
Website: www.nsgroup.com
Update: Northstar Group has reached a final close of $810 million on its fourth fund, which targets Southeast Asia, with a particular focus on Indonesia.
Northstar Equity Partners IV launched in early 2014, with a target of around $800 million and a hard cap of $1 billion, and it achieved a first close
of $500 million in July of that year. The process was complicated by a challenging fundraising environment and uncertainty about the Indonesia.
NEW FUNDS
Location: India
Fund Name: Next Orbit Ventures Fund II
Target Amount: US$ 750 million
Launch Date: November 2015
Fund Manager/Advisor: Next Orbit Ventures
Stage Focus: Buy-outs (MBO/MBI/LBO), Expansion/Growth Capital, Mezzanine/Pre-IPO, Start-up/ Early Stage, Turnaround/Restructuring
Industry Focus: Electronics
Geographical Focus: India
Contact: Hetal Gandhi
Phone: (91) 91-6754-0972
Email: contactus@nextorbitventures.com
Website: http://nextorbitventures.com
Update: Next Orbit Ventures will raise its second fund at $750 million, which will invest in the electronics industry, including in a semiconductor chips
manufacturing facility. The Fund aims to raise commitments of up to $300 million by March and the remainder by June 2016.
FUND-RAISING MONITOR
16. avcjchina.com
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Unique networking
opportunities
100+
Limited
Partners
215
Companies
Represented
LPs
LP-GP
RATIO
LPs GPs
1 : 1
Attended by 100+ LP
and 46+ Speakers from China and overseas
BY
COUNTRY
Over 335 participants from
18 countries and 215 companies.
Co-Sponsors VC Legal Sponsor
Sponsorship enquires: Samuel Lau
T: +852 3411 4963
E: Samuel.Lau@incisivemedia.com
Registration enquires: Pauline Chen
T: +852 3411 4936
E: Pauline.Chen@incisivemedia.com
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Learn from 50+ renowned speakers who share unique insights on regional and
domestic investment opportunities
Connect with 300+ leading GPs and LPs, policy makers, investment professionals
and senior corporate executives from across the globe
Meet 100+ LPs from China and beyond
Grasp the latest trends and opportunities through 15+ thought-provoking sessions
covering the most important topics
Enjoy numerous and intimate networking opportunities with top experts at our
workshops, roundtables and social events
GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY
15th Annual Private Equity Venture Forum
China2016
9-10 March • China World Summit Wing, Beijing
Simultaneous translation is available
论坛会以普通话 和英语进行
