Looking for investment opportunities in new pastures but unsure of how to enter unknown markets? Know that Asia has a lot more to offer than great food and sometimes-great knock-offs? The rapidly developing economies and the burgeoning interest in startups in many Asian countries means an investment on the continent could be just the thing to boost your investment portfolio.
To help you get started, we caught up with Volker Heistermann, the Managing Director of Taiwan-based investment firm Yushan Ventures, whose years of experience investing in startups in Asia leave him well positioned to guide you through your first oriental investment…
1. Asia is not one market
Asia is broken into many different countries and regional economies with different languages, cultures, religions… and levels of corruption. Indonesia and Singapore are geographically very close together, but very different places to do business. Many investors assume that traction in one Asian country will result in traction elsewhere, but that’s not always the case. Asian consumers have different buying and spending patterns as you move between markets. The rules of the game are different in each country.
2. Remember the legal implications of doing business internationally
Terms sheets and agreements will have different validity within local law and issues like where to incorporate a business are increasingly important. Many people invest in companies without considering their legal back end. This isn’t a problem in the beginning, but once a company has traction, these factors become very important when you want to exit your investment. Offshore vehicles are critical to protecting your investment in economies whose infrastructure is not conducive to startup law.
3. China is not the promised land
Of course China represents a huge opportunity, with over a billion people and over 500 million mobile subscribers, but it’s a hard market to tap and quite unpredictable. Even in Taiwan, where the people speak the same language and come from a similar culture, expanding to the Chinese market is difficult. Connections to the government and trusted local partners are particularly important.
4. It’s hard to make an early-stage investment without knowing the right (local) people
You need people you trust to help you navigate the market, and make sure you’re picking companies that can withstand the local market conditions. Many of the most successful startups in Asia are copycats of American companies, but tweaked to the local market. EZ Table, which attracted $100m in funding from Clay Christensen, is similar to Open Table but tailored to Asian consumer patterns. Vendors are less likely to pay for services, so EZ Table makes money through consumer purchases.
Don’t just invest in things that would make sense at home, but really think about how a company can function in the local environment and which partners can help you find and nurture those companies.
5. Partnerships are hard to find
There were several opportunities that we have had to pass on because we couldn’t find local partners. Some young entrepreneurs, and even some companies, seem reluctant to work with others – even to accomplish shared goals. Things get easier with time as you build a name and reputation, but even then it can be difficult if you become viewed as a threat or a competitor in the local market. Finding the right people and organisations to work with can be a huge barrier, this is a challenge that requires a lot of time and persistence to overcome.
6. Take advantage of co-investment
The government of Singapore and many municipal governments in China have matching investment programs facilitated by GP or VC funds. These can be a great segue for first-time foreign investors.
7. You might fail
We’ve been in Taiwan for two years and have altogether made ten investments in Taiwan, Austria and Silicon Valley. We’ve noticed a real difficulty early-stage startups face when they leave their home environments and adapt to other markets. However, foreign investors are uniquely positioned to help with this challenge, they can be a huge resource. Of our investments in Taiwan, Lucent Sky, a B2B security firm, is poised for large scale international growth, and when they succeed it will be a big milestone for us and for local entrepreneurs trying to emulate their success.
8. Keep trying
There are a growing number of active foreigners working in early stage investment in Asia, and between us we share a lot of valuable experience and a huge network to support the ventures we build. It’s key to coinvest with local Angels and to invest in local teams.
9. It’s a growing ecosystem
The ecosystem is such that is encourages you to build and nurture it. My organisation brought Startup Weekend to Taiwan and now we’ve run over seven Startup Weekend events in the last year. Hosting events, meeting all the local talent, and being part of their growth really connects you the industry and helps you spot the best teams from the very beginning.
10. Build government relationships
In many Asian economies, especially China, it is important to build relationships with municipal and federal governments. The Chinese propensity to base business on relationships, especially with the Government officials (guanxi), is critical to the success of entrepreneurs.
For related posts, check out
“The app economy is finished” – The view from Taiwan from a European Silicon Valley investor
Kinnevik sinks $40m into Rocket Internet’s “Amazon for Asia” Lazada
“I couldn’t fit back into German society” – the German entrepreneur who found his niche in Korea