Mixed impact on exits as early-stage VC heats up – AVCJ Forum

Speaking at the AVCJ Forum, Yipin Ng, founding partner at Yunqi Partners, said that although increased activity from Chinese strategics such as Alibaba Group and Tencent Holdings was generally welcome, it could be problematic at the Series A and B levels. He observed that when start-ups take sides in the rivalries of conglomerates too early, they benefit from access to resources but also risk losing focus on their own growth agendas.

"On a long-term basis that may not be a great thing," Ng said. "With a very big check, they can just burn the money and not worry about the business model. From the financial investors' side, your returns can get diluted quite significantly because the nature of the business is now more strategic and more about market share than the economics of the company."

In Southeast Asia, US-based 500 Startups was said to be experiencing a similar trend among strategics as well as more frequent collaboration with pension funds, life insurance companies, and fund-of-funds seeking exposure to young technology companies. The heightened activity has helped the firm sell off company stakes within only one year of acquiring them from angel investors.

"What we've been seeing is that we have a choice to sell shares, and we've done it multiple times," said Khailee Ng, a managing partner at 500 Startups. "A lot of times we would buy ahead of what we know would be a Series B or C and sell. So it's strange – the seed funds have become a bit more liquid."

Meanwhile, Michelle Deaker, a managing partner at OneVentures, extended the theme to Australia by noting PE players were now starting to participate in local Series A rounds. This was attributed to declining opportunity in the buyout market and technology being increasingly seen as the only viable growth area. As a result, VCs are experiencing disruption in their usual exit strategies.

"Sometimes it's an opportunity for liquidity, but more often than not, you've got a longer hold time," Deaker said, noting that some funds in Australia are now being raised to last 15 years. "If you lose the control of the deal timing and when the exit is going to be, that does create misalignment in the companies. We've got one at the moment where we're trying to move the entrepreneur towards a liquidity event because the strategic investor has no view of liquidity."

Sanjay Nath, co-founder at Blume Ventures, described the disruption of exit markets in India as depending on the segment. For example, he found that the longer holds implied by an influx of strategic capital could be beneficial to deep tech and B2B investments because VCs tended to retain more meaningful stakes in those types of companies versus consumer-oriented plays.

At the same time, local IPO options for start-ups were said to be expanding in the country as investor interest from the US and around Asia inspired entrepreneurs to take their companies to the next level. 

"It's going to be a hybrid exit strategy," Nath said. "The number of our Indian founders that have Beijing and Tokyo stamped on their passports has increased tenfold and that's very positive. We're seeing these companies thinking about going global from day one."

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• Topics
• Greater China
• Southeast Asia
• Australasia
• South Asia
• Exits
• GPs
• China
• Australia
• India
• 500 Startups
• OneVentures
• Blume Ventures
• Venture
• seed
• IPO
• Trade sale