At the San Francisco Bay Area, e27 had an opportunity to meet with GPE Holding CEO Michael Gale and Henry Wong, who recently joined AsiaBrandTech (ABT) as managing director. The casual dinner meeting focused on the US$ 250 million venture fund that provides cross-border opportunities into and out of Asia. Primarily operating from Singapore, the venture is headquartered on Market Street at the SF Bay Area.
GPE Holdings Inc. run the Gramercy Group, which holds a portfolio of technology assets and operates funds management, investment banking and advisory businesses. As a point of specialization, they focus on cross-border opportunities across range of tech industries in digital and social media, Software-as-a-Service (SaaS), e-learning, clean technology, sustainable business and telecommunications.
The group’s core divisions involve advisory services through Gramercy Venture Advisors, Investment Banking, Wealth Management, and Fund Management helmed by Gramercy Private Equity which is the manager of ABT Fund.
Henry, a Stanford University mentor, has minimized his role in all other endeavors including in his own family trust fund Diamond TechVentures LLC, as venture partner at Garage Technology Ventures, and his involvement in various corporate boards as observer and advisor. “”But my lead source from Diamond, Garage, CSPA’s 8,000 members, and CCICE’s 25,000 members will keep coming,” says the serial entrepreneur and venture investor who has resided in Silicon Valley for the past 30 years.
In his leisure time, Henry considers himself a good Iron Chef and Jazz drummer, and has has been enjoying successful investment exits from sales of Packet Island to Broadsoft, STEP Communications to Dolby Labs, NextG with a New Oriental Education & Technology Group IPO, and LGC Wireless with the ADC Telecom merger.
Henry has gained limited partner investor’s experience from fund raising for Crystal Ventures, Diamond and Garage. During his fund-raising efforts, he has also interfaced with Cambridge Associates, Hamilton Lane and CalPERS. “Preparing Private Placement Memorandum (PPM) and Due Diligence effort were a very positive experience for me,” he adds. He is also a limited partner investor in several VC funds, including Gabriel Venture Partners and ONSET Ventures.
The seasoned angel has founded several companies such as SS8 Networks Inc., XaQti Corp., CNet Technology Inc., and Combinet, an ISDN Systems sold to Cisco Systems.
During the dinner, he shares that ABT tragets three types of companies. First are U.S. companies in their early circle that have been forced to go global, but don’t have the resources to deal with Asian markets. Second are “born global” American companies that need help in penetrating key Asian markets. THird are Asian firms trying to tap into the U.S. market.
Here are key points from our interview.
You and Michael, as leading executives, serial entrepreneurs and veteran angels, have extensive experiences in tech companies across the States and Asia Pacific, for more than two decades. Now by driving ABT vehicle into the APAC region, bringing those long and extensive experiences, which industries and countries are you going to inject the funds into and why? Do share the priority among those nations.
With the exception of Life Science and Pharmaceutical companies, which we don’t have any expertise in, we focus into the fast growing internet software marketplace, we also found mobile or local social marketplace extremely attractive. These are super hyper growth areas that requires a fund with very experienced and knowledgeable partners to address. I was with Crystal Internet Ventures from 2002’s internet cycle, and my historical experience helped me to earn my knowledge in in this area.
As far as countries are concerned, ABT works diligently with the Singapore Infocomm Development Authority (iDA) Department to review deal flows. There are a lot of similarities between how Singapore startups behave and those located in Silicon Valley. The next location that are mobile and internet savvy are China, followed by Korea, Japan, Hongkong and the fast growing Indonesia. We entertain business plans from all other countries, but there are only 18 hours of working time a day. I still need to eat my dinner, or my mother would not be happy with me!
Gramercy Private Equity, the private equity arm of Gramercy Group, has allocated US$ 250 million. How do you slice the pie this year and for the next year?
With a surge of companies applying for equity funding from ABT, we have allocated US$ 100 million immediately for this first year. Since we are reaching the end of 2012, the money will continue to deploy in 2013. In our venture investment business, we do not force ourselves to deploy capital for the sake of meeting a budget. Any deal that is done in a hurry always fails! To be a good venture capital, you must do your due diligence slowly and carefully, and most importantly, logically. Every time I fall in love with a deal, it is always wrong! Therefore a lesson learned from our industry is that, “Don’t fall in love! Emotional decision is always wrong!”
Noticing that Gramercy Group principals, Michael and Randy Boyer, found and utilized OBSE financing structure as a cost-effective and low risk way for earlier stage tech companies to expand into Asia, what’s other techniques deployed, and what challenges you frequently face during the investment cycle?
In Stanford University I mentor a class called Technology Entrepreneur (E-145). I have an acid test method for all startups and mature companies. This acid test reviews all the pros and cons of any company. I also call this the five finger mountain (五指山). None of the companies can escape from this due diligence or water chamber scrutiny.
Regarding how to obtain deal flows (approaching), I am related to a lot of non-profit organizations in Silicon Valley, a few venture funds I either invested into, or am a venture partner or advisor in. For instance, our Garage Technology Ventures receive 10,000 deals a year, because their founder is Guy Kawasaki, the original Apple Computer Evangelist. It takes Guanxi connection and good relationship to be loved in Silicon Valley.
The challenge in investing in other parts of the world is not the markets or technologies, which with enough studies, you can differentiate. This is level one test, then there is the deeper level two test, which not too many companies can conduct, except the banking institutions.
The real challenge is in the people that you invest into. In the USA we have Social Security Number. To apply for a home loan, the bank will run a credit check on you and see how good your credit is and what kind of history you have accumulated. If we are investing into a mature company, that would be easy, because the CEO and team probably will have some prior work history and local society background. But for startups and very young entrepreneurs, they have no record and no history.
Therefore, how do you decide who to invest in and how much can you trust them? Remember in some other countries, there is no Social Security Number, maybe some citizen ID Card, but the ID System is not online, real time nationwide. Here comes the challenge. You need to make your own personal judgment. Investment is not a science, it is an art.
We know tons of valuation methods out there, from backward induction finance, Market Multiple, Discounted Cash Flow (DCF) to Valuation by Stage. What’s the most common method you use in seed, start-up and growth stage?
Beauty is in the eyes of the beholder. There is no rule of thumb how one VC valuates a deal. You can use backward induction finance, future value and cash flow analysis to calculate, but at the end of a day, Valuation is still very subjective!
How do you overcome the local laws and regulations, which are varied between one country to another in pre- and post-investment periods?
My core competency is to seek a business opportunity that may grow into the market, and subsequently because I am an early investor, the return maybe higher. I will leave all the non-core business, such as legal, to the local lawyer. We like to work with knowledgeable legal counsel and depend on them to manage the legality in each country. However, we do study the law to a certain extend, which is for the sake of general knowledge, but not to practice law.
Venture capitalists always want to maximize returns and minimize risks, and Intellectual property (IP) has provided the basis for them to place their resources at risk. The risks they must consider in reference to the IP includes market, financial, management and technological. How does it influence ABT deal sourcing?
IP and Patent Rights are extremely important to us. If the project or new company can be cranked out over a weekend by two Stanford Graduates inside a garage with a dog, then the value is not too exciting. You must engineer or design a project that nobody else can copy, and if they do, your filed patent may be the only differentiation.