Still, putting money into early-stage businesses is a notoriously dicey proposition because only a small fraction succeed.
19 Oct, 2017BLOOMBERG.COM
In Hong Kong, 35-year-old Matthew Tai has been shifting part of his family’s fortune, built by his father and uncles in real estate, into a string of digital startups.
Tai says he’s invested in crowd-funding platform FundHive, a producer of ultra-thin LCD screens called Organo-Circuit and recruitment website Freeboh. About 15 percent of his $70 million family office is in technology investments, compared with nothing two years ago.
"My family’s traditional business was about the development of land," Tai said. "But that’s history. The new world is in the cyber world.”
The rising ranks of Asian millionaires has pushed assets managed by wealthy clans in the region to more than $17 trillion, according to the consultancy Capgemini. A chunk of that cash is flowing into technology startups in the region and overseas as more digitally-savvy heirs take control of family fortunes. Their hope is that these new investments will generate higher returns and modernize empires that are decades old.
The fresh flood of Asian money promises to inflate already lofty valuations for the most promising firms in the red-hot tech sector. The $93 billion SoftBank Vision Fund and state-owned Chinese entities are also on the prowl for new businesses, as are investors from around the world. Amid the formidable competition, many Asian families are investing in startups at the earliest stages, a contrast with the more conventional approach of older generations, who focused on areas like real estate and manufacturing.
“Convincing the older generation to invest in tech often isn’t an easy sell," said Singapore-based Ozi Amanat, who raised $183 million to help wealthy families invest in technology through his K2 Global venture capital fund. "Convincing the young is like preaching to the converted. They know that no line of business can survive today without online customer relationships.”
In Malaysia, Jo Jo Kong’s father became one of the country’s richest men by setting up a funeral services business in the 1980s and then expanding into real-estate. Now the 26-year-old is venturing into technology.
Kong, who is a director of the family’s real estate development company, in August became a partner in RHL Ventures, an investment firm founded by children of other prominent Malaysian business families. RHL’s investments include Los Angeles-based Sidestep, which has an app that allows fans to buy concert memorabilia online, and San Francisco-based GameOn, a sports conversation app.
“We need to understand the tech space," Kong said. "We need to know how to utilize it to our advantage to keep it relevant, whether it’s real estate or funeral services.” Her family has already begun adopting technology in their business, using drones to survey their palm oil plantations, instead of helicopters.
Asian families are looking further afield after an eight-year rally in the U.S. has pushed stocks to new highs, while the MSCI Asia Pacific Index has more than doubled from its 2009 lows. Meanwhile, ultra-low yields suggest there’s little room for bond price gains.
Even within technology, Asian investors are hunting for untapped areas. For instance, in terms of valuations, "there are still opportunities to have in the startup space at reasonable prices in Southeast Asia,” said Chua Kee Lock, the chief executive officer of Vertex Venture Holdings Ltd., an arm of Singapore’s state-owned investment firm Temasek Holdings Pte.
Families are adding to the wave of money coming from investment firms operating in the region.
Jeneration Capital -- a firm with a Hong Kong office that has raised money from Chinese tech executives as well as other funders -- has been an investor in Meituan-Dianping, the Chinese group buying and restaurant review service, since 2015, according to a person with knowledge of the matter. Last year, it added investments in firms including Uxin Ltd., a Chinese site to buy and sell used cars, as well as Grab, the Singapore-based ride-hailing service, the person said.
Hong Kong-based Composite Capital Management, led by David Ma, invested $50 million in Zoox Inc., a California-based startup working on self-driving cars, in the fourth quarter of last year, according to a person with knowledge of the matter. Representatives for Composite and Jeneration Capital declined to comment.
Still, putting money into early-stage businesses is a notoriously dicey proposition because only a small fraction succeed. Also, newcomers can boost already hefty valuations in startups where investors are expecting outsized returns, said Han Kim, a general partner at Menlo Park, California-based venture capital firm Altos Ventures. “Whenever there’s more money going in for limited opportunities, prices will go up and people who are investing in high prices will probably get hurt,” he said.
Those startups that do succeed, surge in valuation, making it vital to pick a potential winner early. “To pick the right investments, you need a lot of expertise on board,” Vertex Venture’s Chua said. “It’s not about knowing a lot of people. You need to know the right people.”
In Singapore, Satveer Singh Thakral is pushing his 112-year-old family business into tech. Started in Thailand as a textile trading operation in 1905, the business is now a conglomerate spanning retailing, real estate, logistics and hospitality. Thakral started the Singapore Angel Network with his father through which the family has invested in about 100 tech startups.
“The first generation usually starts investing in what is considered safer asset classes -- bonds, equities, real estate, gold,” Thakral said. “Later generations start looking for returns that complement the returns from safer assets.”