Venture Capital Mobilizes in Asia
By David James, Mon Nov 20 00:00:00 GMT 2000

For years wireless innovation has been the province of national telecoms and big high tech companies - NTT, AT&T, Motorola, Ericsson, Nokia and others - all financed by their own hefty cash flows and their bankers. Now entrepreneurs in Asia are finding huge opportunities opening up for them in the mobile Internet space, and venture capitalists are funding their startups.


There is an old saying in Asia that it is better to be the head of a chicken than the tail of an ox - meaning that it is better to have your own small business than to be a worker in a larger organization. So it is no surprise that entrepreneurism is strong in Asia, or that talented young people with new ideas, turned on by the success of people like Jerry Yang of Yahoo! and Bill Gates of Microsoft, are bailing out of large organizations and government ministries - or shunning them on graduation from universities - to start their own companies.

From Dotcoms to Mobilecoms


Until very recently, the entrepreneurial ideal in Asia was the dotcom - new technologies, applications and services for the Internet. Its startup model was a small group of talented people, with money borrowed from friends and family or venture capitalists, who could build a business and get rich in a very short time. Last year at this time, technology stocks were soaring in Asian markets and dotcom startups were raising hundreds of millions of dollars.

Lately, however, technology stocks around the world are swooning, and funding of new dotcoms in the United States and Europe has dropped dramatically. But venture capital investments in Asia are still surging, with much of the attention focused on the mobile Internet.

According to Robert Theleen, chairman of ChinaVest, Inc., an American venture capital firm with offices in Beijing, Hong Kong, San Francisco, Shanghai and Taipei, investors see Asia as now having the more exciting opportunities. "Asian growth rates are higher than those of mature economies like that of the United States, and new technologies - especially in telecommunications - are opening markets with incredible speed. This is especially true in China. It's significant that many technologies are now being designed in Silicon Valley specifically to serve Asian markets," he says.

Asia is a natural for mobile Internet innovation and investment. Asian countries have invested heavily in wireless technologies and broadband infrastructure. Wireless subscribers now outnumber fixed phone subscribers in some countries. With third generation (3G) mobile technologies now coming online, it is likely that many Asians will use wireless Internet devices - Internet-capable mobile phones and appliances - in preference to more costly personal computers. These developments present a wide array of possibilities for entrepreneurs and venture capitalists.

"Venture capital activity has definitely stepped up in the wireless space now that the dotcom space is gone," observes Hanson Cheah, executive director of AsiaTech Ventures, a Hong Kong-based venture capital firm that specializes in Internet and communications technology investments in the Asia Pacific region. "Wireless application developers and service providers are springing up like mushrooms in Asia," he says. "They are your basic small software shops that develop WAP applications and other services for corporations. Everything from horse racing results to corporate databases. This area is already booming."

Among AsiaTech's investments is Phone.com, Inc., a provider of software that enables the delivery of Internet-based services to mass-market wireless telephones, enabling subscribers to gain mobile access to e-mail, stocks, weather, travel, sports and various telephony services. Phone.com, a U.S. company with its Asian headquarters in Hong Kong, is increasingly active in China, Japan and Korea. Another AsiaTech investment is Portelco (Asia) Ltd., headquartered in Hong Kong, a provider of wireless applications that enable everyday mobile phone users to conduct e-commerce transactions with keypads and voice activated commands over a multitude of wireless platforms.

A New Paradigm


"The key factor is that 3G will be a paradigm shift to a new playing field," claims David Williams, Asia Pacific partner of the venture capital firm Draper Fisher Jurvetson (DFJ). "DFJ has always made its best returns by betting on paradigm shifts. When one occurs, startups always outmaneuver the legacy companies, who find it hard to compete owing to a more bureaucratic mentality and ties to older technologies. There will be immense opportunities for newcomers." Williams illustrates his point this way: "Does anyone doubt that Yahoo will remain the #1 PC portal into the distant future" No. However, will Yahoo be the #1 mobile portal? I would guess not."

Williams says that a mobile portal leader has not yet emerged in Asia but that Tellme Networks, Inc. (www.tellme.com), of Mountain View, California, has established an open platform network that holds the promise of one in the United States. Tellme's services permit businesses and individuals to create voice-activated phone sites that enable callers to obtain information over fixed and wireless phones and devices, including mobile Internet devices, using commands such as "restaurants," "taxis" and "stock quotes."

Williams adds that his firm sees the mobile Internet as a fertile opportunity for reaching new Internet users, particularly in countries like China and India where the vast majority of Internet users will have their first Internet experience via a mobile interface. "The number of these new users will dwarf the current Internet base within a few years," he says.

Retreads and New Treads


According to Williams, his Hong Kong office receives an average of ten business plans a day, about half of them involving mobile communications. "I would split the mobile business plans we are seeing into two categories: (1) those from the opportunists, and (2) those from the innovators," he says. "The vast majority - from the opportunists - are from pre-existing startups in the B-to-C space who see that venture capitalists are now interested in the mobile sector. They simply revise their old business plans and call themselves wireless plays. These companies potentially have a negative impact on the overall wireless sector because they are generally managed by people without wireless experience and in most cases are destined to fail, which could ultimately give the wireless sector the same negative reputation now facing B-to-C e-commerce. Additionally, many of these companies have been funded and feel the need to spend all of their capital - which leads to their offering free services or even paying for contracts, competing away profit opportunities in the sector."

"On the other hand, we receive business plans from a number of true innovators in the sector," says Williams. "These are the ones we are always in search of. Usually they are teams coming out of companies such as Nokia and, to a lesser extent, Ericsson and Motorola. We're especially interested in new communications technologies that make the Internet more accessible via mobile phones and new content applications that will entice mobile users to surf the Internet," he says. "The mobile Internet will not replace fixed line Internet in Asia, but it will be the bigger of the two."

The most successful mobile Internet applications will be locator-based modules, providing information about - or interacting with - nearby establishments such as restaurants or vending machines, according to Williams. But rosy predictions of the amount of money to be made in m-commerce or m-content over the mobile Internet may well be exaggerated, he cautions. "The smaller screen size and slower speeds of mobile devices are limiting factors for business transactions. And targeted alerts and advertising messages can be an annoyance for mobile users," he says.

Foreign VCs Welcome


Many international venture capital firms now maintain offices in Asia. According to Williams, Hong Kong has the highest concentration of venture capitalists in Asia, in part because of its proximity to China, Korea and Taiwan. "The economic output of North Asia dwarfs that of the rest of Asia, and Hong Kong is a good spot for venture capitalists because of its geographic position and reputation for free trade. Another good spot for venture capitalists is Singapore. The Singapore government has done an extraordinary job of creating an environment that is welcoming to both entrepreneurs and investors. In the case of the VC community, that means that various Singapore government entities often end up as proactive limited partners in VC firms' funds," he says. "We have offices in both Hong Kong and Singapore, and we believe that we can cover Asia very well out of these two locations for at least the next few years," he adds.

Singapore's venture capital involvement includes a $1 billion Technopreneurship Investment Fund set up by the National Science and Technology Board in April 2000 to co-invest in technology projects with venture capitalists. Venture capital firms participating in the fund include 3i Group, Fortune Venture Investment Group, Pacific Venture Capital, Whitney & Co. and Draper Fisher Jurvetson.

One result of the Asian financial crisis of 1997-98 is that foreign investors and partners are now more welcome in Asia than before. This is true of Korea, according to Simon Bureau, managing director of Vectis International Inc., a Montreal-based firm that provides business development support services in Korea to North American information technology companies. Indeed, according to Chung Eui-sok, an assistant manager of Welcome Technology Investment Co., Seoul, many Korean startups prefer to be funded by foreign investors because these investors are willing to take high risks for high returns.

Coming Home to Roost


Another result of the Asian financial crisis is that economic reform is now a primary goal of many Asian countries, giving foreign and domestic venture capitalists alike an expanded role in developing new industries and creating new services. The most promising opportunities for venture capitalists are now emerging in the mobile Internet space. With Asians preferring the head of a chicken to the tail of an ox, venture capitalists can expect to see Asian entrepreneurs bringing some of their best investment returns home to roost.

David James is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in Asia-Pacific business opportunities.