Tuesday, October 26, 2004                                                Section: Technology / Page: 1

Start-up success inspires new wave of venture capitalists

Michael Logan

Internet hubris is making a comeback, with entrepreneurs and investors inspired by the huge profits at American companies such as Google and several mainland firms lining up for Nasdaq listings.

Last week, the United States search giant reported quarterly earnings more than doubled to US$52 million. Its stock has rocketed 103 per cent since its Dutch listing in August.

Shares in mainland online game provider Shanda Interactive Entertainment have climbed 170 per cent since its flotation, while recruitment site 51jobs.com is up more than 104 per cent.

Meanwhile, the markets are eagerly anticipating offers by web travel site Elong.com and real estate portal Soufun Holdings.

Retail investors have come out winners in these initial public offerings, but as in the previous dotcom boom, the biggest beneficiaries have been the early financial backers - the venture capitalists.

Perhaps sensing an opportunity, a new wave of venture capital firms has come on to the scene.

In some cases, the newbies are far smaller than their well-known counterparts such as IDG.

One such investor is UnicoTech, which has offices in Singapore and Taipei.

It does something rare in risk-averse Asia: UnicoTech incubates companies which are typically little more than a business plan on paper.

Big name VCs - many still smarting from the dotcom implosion - generally will only put money into companies already showing revenue and, in some cases, a profit.

'They want established businesses and established processes,' said Guy Kawasaki, who runs Garage Technology Ventures and is author of the recently published The Art of the Start. 'In Silicon Valley, if you fail it's not a problem. It's almost a badge of honour. But almost everywhere else in the world it's a big problem.'

UnicoTech has five investments and hopes to build a portfolio of about 10 companies, according to director Harold Yow.

The VC is particularly hopeful for a company called Asia SEO, which provides search-engine optimisation services for Asian-language websites.

English-language sites had plenty of service providers to choose from for search optimisation, but there were few available to Asian companies, Mr Yow said.

Asia SEO has six employees and aims to raise additional funding in three to six months.

UnicoTech's focus on incubation is probably because of its limited resources: it invests as little as US$50,000 in a start-up.

But while others play safe, Mr Yow insisted UnicoTech could find at least one winner among its investments. Accountants and finance professionals run other VC firms; UnicoTech was managed by founders with a background in technology development.

'We believe that with our technical experience we can do it better than traditional incubator VCs,' he said.

Another early-stage fund about to launch is Ymer Capital Partners, which has raised US$3 million and is looking to invest between $100,000 and $500,000 in start-ups.

Partner Adam Bornstein claimed the traditional venture capital model on the mainland was broken. There was too much capital chasing too few quality ventures at overextended valuations. Many VCs investing on the mainland wanted rewards without risk, meaning early-stage investments were often overlooked. 'We organised Ymer Capital Partners to fill this gap,' Mr Bornstein said.

Ymer is looking for Shanghai and Beijing companies but will consider the Hong Kong start-up.

That is good news for Toby Jones, who is looking for cash to expand his Wheresmydate.com.hk website. The online dating site has 2,900 members and Mr Jones needs $15 million to grow.

He might be asking for a little much. His asking price is 19.15 times the $783,000 per year the site could expect to earn should 15 per cent of the members agree to a planned $150 monthly fee.

Nevertheless, Mr Jones represents a breed that we have not seen for a long time. It is from risk-takers, entrepreneurial daredevils and venture capitalists such as UnicoTech and Ymer that we might see the next Google or Yahoo!

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