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Where can you find early and late stage venture capital opportunities in Asia?

How do the opportunities in early and late stage venture capital investments compare? What are the trends and challenges for both groups?

Starting early

Early stage investors are getting in on incubations due to fears of missing out on big deals further down the line. They are also becoming increasingly specialised in a bid to find promising companies early on.

Alison Nankivell, Vice President, Fund Investments and Global Scaling at BDC Capital, explained that with the market seeing companies going from being non-existent to worth billions of dollars within four years, investors had limited time in which to get in on great opportunities.

Sunil Goyal, Managing Director & Fund Manager at YourNest Venture Capital, agreed, warning that if investors waited for demo day, they would already be too late. “We get a lot of opportunities to incubate ideas at the very, very beginning because we are a pre-series A fund,” he said.

Nankivell added that there was a growing trend for larger general partners that typically did late A funding and beyond, to spend more time with the seed players because they were concerned about missing deals. “They might reserve a small part of their fund to do seed investment because by the time it comes to series A, it might be hard to get a meaningful stake in the company,” she said.

Increasingly focused

Nankivell said BDC Capital was also increasingly looking at investing in very sector-focused or specialist-focused funds in areas where it thought there were opportunities, but also a real need for deep understanding of the sector. The earlier the stage you are, the more you need operational, value-added support from people who have been there. It is pretty hard to run an effective early stage fund if you don’t have entrepreneurs with very specific industry experience.

Goyal agreed adding that being specialist enabled you to see the deals early on. “Nine out of 10 early stage hardware deals in India are seen by us,” he said.

Wei Hopeman, Co-founder and Managing Partner at Arbour Ventures, pointed out that a lot of investing involved getting into deals before the deals actually happened. “You can only do that if you know all the players, you know the entire ecosystem and they know you just as well,” she said.

William Plummer, Partner at Marathon Venture Partners, said he focused on talent clusters in order to identify companies in which to invest in at an early stage. “We find the people who have really proven themselves and spend time cultivating them. When we see the right talent, who is at the right moment in her personal journey, we help support her in moving forward,” he said.

Sharp slowdown in later stage

Meanwhile, Hian Goh, Partner at Openspace Ventures, said later stage investments in the region were becoming increasingly tech dominated. He said research by Bain and Company estimated that 50% of private equity deals by volume in Asia Pacific in 2018 were tech related.

“Globally late stage tech is now worth roughly USD180 billion. It is a massive asset category,” he said. He estimates that Asia currently accounts for roughly half of the global late stage tech deal volume, meaning it is critical not to ignore the region. But he added that there had also been a sharp slowdown in the past two quarters, with late stage tech deals falling to around USD35 billion.

Jason Tan, Partner & Chief Investment Officer at Jeneration Capital, agreed that there had been a slowdown in terms of both fundraising and investing in China. He said his data showed that in the first seven months of the year, deal volumes in China were around 40% lower and fundraising was around 50% lower year-on-year.

Danying Ma, Managing Director at Tencent Investment, also thought the pace of investment was slowing, but she added this was concentrated in the pure tech and internet space. “We still see a lot of opportunities in China but there is not the low hanging fruit,” she said.

An underpenetrated market

Oliver Rippel, Co-Founder & Partner at Asia Partners, thinks there are significant investment opportunities in growth stage investments in South East Asia, which he defined as starting at US$20 million up to US$50 million.

“It is deeply underpenetrated today in South East Asia. You have a lot of late stage players, such as private equity and sovereign wealth funds, and a very healthy vibrant venture upstream ecosystem, but you have very little in the middle.” He added that it was 100 times harder per capita to raise a US$20 million cheque in South East Asia compared to the US and five times harder to do so than in China.

Goh pointed out that the market for late stage deals in South East Asia had developed significantly in the past five years, going from US$1.42 billion in 2014 to US$2.75 billion in 2016 to US$10 billion last year. “South East Asia and India are fast-growing emerging markets that present a lot of good opportunities,” agreed Ma. Don't miss out, agreed the panel.