Business Times - Asia (February 17, 2001)

TAN Lip-Bu's jetsetting ways are not always understood by his fellow Silicon Valley venture capitalists. "They say, Lip-Bu, you must be crazy! Why do you bother to fly to Asia, so far away?" recounts the chairman of Walden International, one of the oldest multinational venture funds based in the Valley.

He receives these comments with a genial smile. "It's understandable. Unless you have ties to Asia, if you have family and roots there, and you feel you need to help your country, then why bother? "Look at Geoff Yang from Redpoint Ventures. Even though he's a Chinese born in America, he doesn't have ties back to Asia, and the returns are so good here in Silicon Valley. Kelvin Fong from Mayfield Fund is the same. He's so busy here, he has no time to fly to Asia. For top-tier venture firms, the senior partners' time is too valuable, so yes, why bother?" he wonders.

For Mr Tan, born in Malaysia and educated in Singapore, the move makes sense precisely because of his ties back home. This influenced his decision in 1983 to turn San Francisco-based Walden into an international firm. The firm is active in China, Hongkong, India, Japan, Malaysia, the Philippines, Singapore and Taiwan.

Among its investments are Singapore's very own Creative Technology, MediaRing, Innomedia, and Informatics Holdings.

Other high-profile investments worldwide include Sina.com, Transmeta Corp, S3 Inc,Vitesse Semiconductor and Centillium Communications. He has also served in the wider Singapore community, most recently as a board member of the Chinese High School. Although he now calls California home, Mr Tan travels up to nine times a year to Asia. "You'll find that some firms may start an office in Asia and recruit a local guy, and then they don't travel to the new office.

"But if you don't train them properly, the way they look at deals, the way they add value to the companies, would be very different from the way you do it at heaquarters. "Walden International is not generally considered among Silicon Valley's "top tier", a title reserved for some of the oldest and most venerable firms in the Valley. But feloow VCs speak of the firm with respect.

Sequoia Capital founder Don Valentine calls the firm a pioneer of "the art of investing remotely", while Doll Capital general partner Peter Moran ranks Walden as "one of the leaders among multinational VCs".

Investing in Asia is no walk in the park, says Mr Tan. "The reality is that the infrastructure is still not in place, there is no breakthrough technology, and that it's a big, but slow-growing market now. There aren't a lot of 'home-run' companies. Can we create an Ariba in Singapore and Hongkong? Very unlikely. If you can get a billion (S$1.7 billion) market cap, you're very fortunate."

The lack of breakthrough new technologies developed in Asia, combined with relatively shallow marketing talent, are other major obstacles.

"How many Creatives can you find in Asia?” he asks rhetorically. "(Creative’s chief executive) Sim Wong Hoo has that sense of market dynamics. The most successful companies in the US have CEOs with great marketing sense. For Asian entrepreneurs, the missing piece is marketing." A few areas which have "worked" for Walden in Asia are in manufacturing, given Asia’s strong electronics manufacturing history; the wireless and telecommunications industries; and Internet firms focused on the Asian market, says Mr. Tan. Asian companies also take longer in delivering returns. In Walden’s experience, it can take an average of 10 years.

"Some venture firms want a quick return, but I think a five to 15-year horizon makes more sense," Mr Tan says. Despite this, Walden's returns from Asia are comparable to what its US investee companies deliver, says Mr Tan. "But it's unusual. For other firms, their Asian returns are much lower." He declined to reveal his firm's figures.

Mr Tan believes the dotcom valuation crash last year will lengthen VCs' investment return horizons. "In the dotcom days, you could build a company in two or three years even without profits or revenue," he said. "We're now back to the old-fashioned way of doing business. The market's going back to PE ratios now, and in away that's more healthy." Despite the cool market sentiment, Walden has had no problems raising new funds. The firm recently raised more than US$1 billion for a new fund.

"I think brand-name firms still don't have many problems trying to raise funds," says Mr Tan, who said a large percentage of the money would be used to help existing portfolio companies through this tough period.

Most Silicon Valley VC firms will remain locally focused, believes Mr Tan, since "they're usually not very institutionalised, have at most seven to 10 partners, and not a lot of partners to spare for international work".

This means a likely scenario for the Asian venture capital firms is the existence of three types of firms: big, global firms, which have to learn how to adapt their skills to the Asian environment; homegrown Asian firms such as Singapore's Vertex Management, some of which will themselves go global and penetrate Western markets; and investment banks. "There's room for the three types, and they're all going to do well," says Mr Tan.