The Silicon Valley view on investing in Asia: “There’s a lot of nervousness and lack of trust”

(Clockwise from top-left) Larry Li, Vedica Kant, SC Moatti, and Arjun Sethi.

Wariness around Chinese capital, culture as a stumbling block to Asian companies expanding further afield to the US and Europe, and IoT likely to emerge as a new battleground were some of the themes discussed in a panel discussion titled ‘Valley side view of Asia’s technology ecosystem’ at the Asia PE-VC Summit 2020 last week.

On the panel were Silicon Valley-based investors Larry Li, managing partner, Amino Capital; SC Moatti, founder, Mighty Capital & Products That Count; and Arjun Sethi, co-founder & partner, Tribe Capital. The session was moderated by Vedica Kant, consultant, Boston Consultancy Group’s Private Equity & Principal Investors practice.

The US-China trade war and geopolitical tensions at the India-China border have left a palpable impact on the world of investing. But some of the investor misgivings predated these developments. Tribe Capital’s Sethi said: “With China specifically, we have an issue with some of the unfair trade practices and the way in which the ecosystem works for external companies, within that market.”

He added, “Because of trade practices or what is deemed as unfair for a multitude of folks, China has become a target with India specifically, as well as with the United States, Australia, etc. There is more of a ‘take’ versus a ‘give’ with the capital, and the manifestations of governance that come around it. We’ve seen this pullback. It’s not necessarily right or wrong but just what has started to happen.”

Moatti observed that at a geopolitical level, the relationship between the US and China has not evolved much since the Kissinger-Nixon era. At the micro-level, many deals had fallen through when there were investors from both sides of the Pacific. “It’s much harder for our portfolio companies and for businesses, in general, to expand to Asia — they have to do it through partnerships, whether it’s distribution or manufacturing. Many of them are creating redundancies for their production facilities — keeping one in Asia and one outside. There’s definitely a lot of caution,” she said.

Li, too, had experienced these tensions firsthand — Amino Capital’s partners from China visited the US on an almost weekly basis, but things had changed post the trade war. “Fortunately, our LP base is pretty diverse with quite a few of them in the US. We work with them to invest in Silicon Valley, as well as in Europe,” he said. The tensions had also resulted in China-based LPs not preferring to take their money overseas. Amino Capital had started a separate local RMB fund to meet these needs, said Li.

He was also at pains to distinguish between investments made by the Chinese government and by independent entrepreneurs from the country — a distinction that Kant pointed out, was lost on many of those who harboured suspicions of investments from China. What could change things though is the recently signed Regional Comprehensive Economic Partnership (RCEP) treaty.

Li believed it gave China the opportunity to build a unique ecosystem in the region. He said: “Previously some industries were not competitive against the US companies, they had no chance to compete or survive. But now they have the opportunity to not just survive but thrive.”

However, cracking Western markets, something Asian companies are not traditionally adept at doing, may still be a challenge. This, argued the panellists, was even true of a B2B offering. Sethi said, “It’s not just about localisation and changing the language; it’s about the nuances of how people interact.”

He highlighted the difference between the centralised economy and society of China to the highly-fragmented US and India. “Businesses don’t work the same way. For India in particular, if you look at SaaS, they are either focused on Western markets or inwards. They don’t focus on the ecosystem across the board. Companies gravitate to other countries that are more akin to their workflow. So in India, if you think about ecommerce, other places that are similar are Egypt, Indonesia, and parts of the Middle East. China looks at countries that are more akin to it and so Vietnam becomes a natural centre,” Sethi added.

Moatti added, “There’s a critical axis to the way US, Europe and Asia behave which is, do you rely more on data or on relationships? The US is at the extreme relying more on data. For most of the unicorns, that’s how they create a competitive advantage. In Asia, it’s the other  — expertise comes from connections. The more experts you can attract, the greater is your competitive advantage. Europe is neither-nor. Which is why there are hardly any unicorns coming out of Europe.”

However, the great equaliser could well be the burgeoning IoT sector. Li said, “The number of devices will be 10 times more than mobile, and the amount of data that we collect and analyse will a hundred times more. This time around, the US, Europe, and Asia will have a similar starting point. On the mobile side, Asia has an advantage. In China, data collection is much quicker; due to regulations in Europe, there are a lot of privacy concerns. Which country will get ahead is difficult to ascertain, but this is an opportunity for us as investors to identify good companies not just in the US, but in China, India and Vietnam as well.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.