The Rear View Mirror Perspective...

A relatively conservative gentleman said to us the other day “Once an Alibaba comes out of SE Asia, Ill put some money into the region” and another riff on the same theme went something like this “China is currently sitting on 5x plus funds, why would I need to do SE Asia?”

Let me give my kind associates a medium-long perspective and the short answer…

No one is saying to sell completely out of China. An economy of that size with energy and drive still has a long way to run. I spent a good part of my career, harnessing its potential for tech IPOs and travelling incessantly on its misty ring roads, – I know the allure.

BUT do you know what the future holds there enough to make that your sole bet on Asia? As we have seen with a recent blip on Alibaba and its regulator, things can suddenly steer off-course. Rules can change, supporters and patrons can strike rough waters.

Does the China way drive an investment environment with certainty going forward? Its just a short few years ago, people worried about VIE structures, accounting and regulatory risks. The IPO market, international and domestic was closed.

None of these risk factor has been eliminated for good. But we have had some fantastic performing recent IPOs and some great fundamental consumer internet success stories. But we are not technical investors who plunge in based on momentum. And we have seen enough cycles in the wonderful world of tech to avoid putting all our eggs in one basket (or “small rice” in one bowl perhaps.. )

In our humble view, SE Asia is fostering a whole new breed of talented entrepreneurs – including local people, long-time adopted residents and recently imported. They choose to live in a region with big markets, low taxes and (generally!) clean air. They are working on local, regional and global problems. The markets are becoming more contiguous (see my previous posts). They face their own country specific risks but these are generally not correlated with the risks in the biggest VC markets of Asia – India and China. If hubbed in Singapore, they have one of the best infrastructure base, stable politics, transparent regulatory and rule-of-law driven economies. If in other capitals of SE Asia, they have dynamic young rapidly adopting populations, limited incumbents and the energy that comes with rapidly propelling a developing economy forwards. There is the chance to create global enterprise products, that look and feel like the best-of-the-west.

The success stories are building. We may not have an Alibaba but we have a whole bunch of value creation ahead of us and its diversified. In hack portfolio diversification theory, its got beta leverage to some big markets, which is not correlated with China and India risk. And lots of alpha to exploit.

The short answer is, the rear view mirror aint no way to invest. If we as VC’s bet on past trends and billion dollar past success stories, we might be sitting on group buying right now. Even fantastic success now are not an adequate basis of VC investing decisions… at our Round A stage especially where much work remains to be done. We do our best to assess what has been past, what is there today and how our own regions are taking advantage. Invest in the best teams and ideas we see getting traction and winning.

Sometimes the rear vision mirror is a good sign of whats ahead, but only in the rarest cases (perhaps on the Nullabor plain??) is it sufficient to drive effectively forward..

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