Dr Jeff Chi, the chairman of the Singapore Venture Capital & Private Equity Association (SVCA) since 2013 and vice-chairman of Vickers Venture Partners, also known as Vickers Capital Group, had his start in engineering.
With an operational background that includes management and operational experience with an engineering group with a presence in Singapore, Malaysia, Taiwan, China and Indonesia, he eventually transitioned into private equity.
Since then, he’s worked his way up the ranks, becoming a founding member of Vickers Ventures and member of the board of directors of various firms and institutions like Matchmove Pay, Roomorama, Jing Jin Electric, Alo7.com and the California Intercontinental University.
Formerly a board member of Cambridge Industrial Trust and an alternate director of the Asian Food Channel (AFC), he’s been involved in the partial and full exits of Cambridge in Singapore, Sunfun Info in Taiwan and the AFC in Singapore, amongst other deals.
Formerly a corporate finance specialist with and executive director at Pegasus Capital, he has managed engagements for large and small clients in the public and private sectors, as well as functioning as a senior consultant with the Monitor Group, now Monitor Deloitte, prior to his role at Pegasus Capital.
With extensive experience conducting transactions and managing assets in international markets like Singapore, Taiwan, China and Switzerland, the managing director of sat down with DEALSTREETASIA to share his insights into the world of startup ventures and private equity investments.
Excerpts from the interaction:
How did you end up in the private equity sector?
Dr Finian Tan, an old friend, contacted me a decade ago to start Vickers. He’d left his previous firm and recruited me to start Vickers with him in late 2004. We launched our first fund in 2005, so that’d make this year the 10th anniversary of that effort. He’s the former deputy chairman of the old National Science & Technology Board, and was formerly with DFG Eplanet, where he spearheaded the investment into Baidu back in 2000.
What’s your opinion on the current state of the startup ecosystem and the investment opportunities it presents?
Things are definitely heating up, given the amount of interest in the market and volume of transactions. This all points to the fact that the industry is growing, but you’ll always have two sides of the same coin. Startups say there’s not enough early stage investors, while investors will say there’s a lack of quality deals. You’ll end up hearing the same story everywhere. These two things have to grow together, in terms of the investment capital, dealflow and a large volume of startup ventures emerging.
The various segments of the ecosystem will grow together – its not a chicken & egg story. I think its still in its early days. More startups are being funded because of general interest in the region. Things will really start to get interesting in when we see a steady flow of exits, either in the form of IPO activity or increased M&A deal volume.
That will be when things really start taking off and that hasn’t happened yet. The acquisition of Viki was a major milestone, but those type of deals are few and far between. When we see a steady flow of exits and similar deals, then we can say its taken off. We saw that in China about 15 years ago, around the time when startup space started gaining traction in the Chinese market.
Human capital – how crucial is it in the development of a business venture?
Critical, as it’s everything to a startup. Startup ventures are reliant on founders, their charisma and their skill. you want to have a good mix of knowledge competencies, skills and abilities within the team. So its critical to find people to bring the people to execute the business plan.
I see investing in a young startup as setting up a partnership And this is a partnership that lasts for quite a few years. You need to make sure that your partners have the skill set to deliver and execute. You need to be cognizant of where shortfalls in the skill sets are and hire the right people to address those deficits.
Is there tougher competition in finding good Malaysian startups to invest in, in light of the Malaysian government and VCs stepping up their efforts to retain high-potential startups in the Malaysian ecosystem (e.g. via the Axiata-Mavcap Digital Innovation Fund) via initiatives like Cradle becoming an investor and co-investment initiatives among local VCs. Malaysian govt/investors have always lamented that Malaysian startups end up going to Singapore and become Singapore companies.
The answer isn’t straightforward. The simple answer is no but that comes with a lot of caveats since its a dynamic situation. IF you asked me last year I’d say no but the market is very dynamic and companies are very intelligent.
Malaysia and Singapore are close in terms of law, culture and geography, so its quite easy for Malaysian companies to find Singapore investors and invest in Malaysia. This anecdote came from a Malaysian venture fund in 2013 – a Malaysian investor said he’d never put money in a Singapore company as valuations are higher in Malaysia.
In the last few years, we’ve seen an inflation in valuation, a regional trend that’s been happening in the last 12 to 18 months, with valuations going through the roof and setting records. GrabTaxi is a case in point.
The point I want to make is that it’s a transparent market. As long as Singapore VCs are competitive, they’ve got a fair shot. Malaysian investors have no advantage over Singapoean investors, aside from being closer to the market and having easier access to the entrepreneurs – its their domestic market after all.
But I’m of the view that at the SVCA, we’re trying to make Singapore a centre for startups in Southeast Asia and a hub for ASEAN, primarily from the investment angle. If you look at the investments, many have been out of Singapore and we want to keep it that way. So we’re building on Singapore’s reputation as a fundraising centre and leverage on that foundation to build ourselves up.
A common challenge highlighted by investors and entrepreneurs is that ASEAN presents a fragmented market, with differing cultural sensibilities and languages. What’s the best strategy and method surmount this for an investment firm?
As a VC there are two approaches. When investing in regional companies, make sure you have something that travels well and can penetrate the various markets because it’s something so basic that demand comes from all markets, with minimal quirks in execution. When Vickers invested in the Asian Food Channel, we did it because it’s a genre that appeals across different regions and languages. That’s one way to do it.
Secondly, I think that increasingly, we’ll notice country-specific startups. And in that respect, that’s the emergence of localisation. So you need to understand the local culture, market dynamics and customer needs. Its about having locals in the team who are able to relate to the needs of customers in the local market.
What do you look for in a prospective hire when acquiring talent for an investment firm?
One thing I look at are complementary skills sets to the current team. How can this person contribute in different ways compared to the rest of the team? Secondly, in early stage investing, dealflow is everything, so the ability to generate dealflow is critical. If they can demonstrate strong skill sets in a specific area and good dealflow, we’re always happy to give people a try.
In your tenure as managing director for VIcker Venture Partners, what are the most significant changes you’ve seen in the ASEAN and China markets?
In my decade as a Asian venture capitalist, I’ve witnessed the Chinese venture market develop and mature. And I’m beginning to see that happen in Southeast Asia as well. I think that I would attribute this to the Singapore government putting in schemes to jumpstart the ecosystem. You’re beginnng to see active investment in startup scenes across the region. They’re saying that Singapore is exciting, with a lot of opportunities.
You’ll see the next phase when the exits begin to happen. I think my fellow VCs in ASEAN have to be careful and if we generate decent returns, then the big money will start pouring in. Right now, there’s still of a lot of government involvement. I’m looking forward to the day when VC’s want to start injecting capital into the Southeast Asia ecosystem and that’s beginning to happen, but not in a big way.
It happened in China after a wave of IPOs from 2003/2004 onwards and it’ll happen in ASEAN eventually. I do hope it happens sooner. Viki happened and it’s only a single data point. Investors need to see a trend before this change occurs.
Do you feel that the political friction over the South China Sea impacts capital flows between China and ASEAN to any degree?
No. That’s two different and separate agendas . You’re seeing a lot of mainland Chinese firms and funds investing in this regions. One of Vickers co-investments in Indonesia was with a Chinese fund actually.
Drones, automation and robotics – how promising do you see this space being, given the low cost of labour the predominates in the labour markets of Southeast Asia ad China?
There’s no real clear answer. I think that automation will probably not be as compelling, given the low cost of labour in Asia, generally speaking. But at the same time, there are things that drones and robots can do. The purpose is not only for cost reduction but the applications they can be used for. And its a trend that will continue happening
With your experience in the China and ASEAN markets, what do you think of predictions that India will eventually outpace China, in terms of economic development, size and influence, especially given the eventual closing of China’s demographic window and the associated problems of an ageing population
Not anytime soon. I think India has a separate set of problems. In my opinion, China has a determined and focused government, so they don’t really have to worry except in certain instances. They have the luxury of getting things done without worrying about what people are saying. I think the right phrase is they have a stable government in China, so they can take a longer term view and ensure the continuity of their projects and agendas.
Any advice for those seeking to work in the PE and VC lines?
I often discuss this with people. The things that I look for in a young venture capitalist are the ability to generate dealflow, strong social capital and connectivity with the local startup scene and strong execution abilities. That’s what you need to get into the scene. It’s best to work for a startup or VC and get a perspective on what’s happening, in terms of seeing the industry from different angles. There are people that say a VC isn’t a good place to start as a career. But its’s not a bad place to end up.