New business needs drive VC funding demands

Chuan Thor, the managing director at China-focused Highland Capital Partners, has seen the emergence of new demand from the enterprise software sector. It is driven by the growth of cloud-based services and software-as-a-service models, which mean businesses have to buy and renew subscriptions instead of buying software once or pirating it.

"We've got a company that in 2007-2009, their growth was just $5 million," Thor told the Hong Kong Venture Capital & Private Equity Association's (HKVCA) Asia forum. "Then they switched to a cloud subscription model, and last year they generated $32 million."

Robotics businesses have also benefited from changing business costs in China. With wages rising and labor for factory jobs becoming scarcer, manufacturers who previously found it cheaper to hire humans than buy and maintain robots have found that automating jobs now makes financial sense.

Korean GPs, on the other hand, are still seeing limited opportunities for investment, due to widespread wariness of the industry that Han Kim, co-founder and managing director of Altos Ventures, attributes to the experiences of an earlier generation of start-up founders.

"A lot of people got burned by VC investment in the past," Kim said. "The founders had to put up their own money to guarantee the funds. You had people mortgaging their houses, or putting up their houses as security."

While the industry has made a recovery in Korea, establishing the trust needed for a productive relationship is still difficult. GPs need to spend time making their case and explaining their business models in order to win over skeptical founders who have heard the cautionary tales of their predecessors.

Melissa Guzy, a co-founder and managing partner at Arbor Ventures, emphasized the role that VC investors play in cultivating start-ups and a healthy business community. VCs bear responsibility for delivering this service to their portfolio companies rather than seeing their relationship purely in financial terms.

"If you're an active early-stage venture capitalist, you're deeply involved. Your investment lasts longer than the average marriage in the US," she said. "You're going to be with that entrepreneur for six to eight years, and you're building a relationship that's well beyond the KPIs [key performance indicators] or the financials for that month. You're actually helping them think about how to build a business."

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• Topics
• Greater China
• North Asia
• Venture
• GPs
• China
• South Korea
• Venture
• Highland Capital Management
• Altos Ventures
• Arbor Ventures
• GPs