Southeast Asia VC still overlooked by global investors - AVCJ Forum

"There is very little LP interest, very few VCs and a large number of them don't have the right background to identify good opportunities and, more importantly, sell these opportunities at highest price," Grove said.

In Grove's view, too many venture capital firms are launched by the likes of bankers, consultants and mid-level managers at Yahoo who don't have direct experience building a business from the ground. He advocates the Andreessen Horowitz approach that has proved so effective in the US - a VC firm founded by entrepreneurs.

Both Grove and Kee Lock Chua, president of pan-Asia VC firm Vertex Venture Holdings, claim to be the only prospective investor looking at many of the deals they consider in Southeast Asia. This is in stark contrast to China and India - which have around 600 and 400 venture firms, respectively - where competition is intense.

"Southeast Asia venture capital started much earlier than China and India, but somehow all this momentum was lost," Chua observed. "China and India have been highly successful and so international LPs ask, ‘Why should I allocate money to a Southeast Asia fund?'"

Grove's criticism of VCs' bone fides could also be made of some Chinese and Indian VC investors, they at least benefit from more robust entrepreneur communities driven by a combination of returnees from the US and interaction with Silicon Valley. Many VC firms in these countries are either affiliates of US operations or have strategic alliances with particular Silicon Valley investors.

The other key differentiator is scale. The thesis for the majority of VC investments in China and India has been the potential to rollout a service nationwide. In Southeast Asia, where social, economic, cultural and lingual barriers are longstanding, this is more challenging.

"In order to secure the returns you have to take a regional approach from day one," said Grove, noting that the seven largest listed internet businesses in Southeast Asia - which include Jobstart Corp, MyEG Services and iProperty Group - have all successfully entered multiple markets.

"A large corporate from Japan or the US would pay a premium for that kind of business because the entrepreneur and investors have dealt with the regional complexities that the buyer doesn't want to deal with."

Chua, meanwhile, identified the role that government can play in providing impetus to Southeast Asia's venture capital community. Governments in the region have begun to address the problem and Chua sees South Korea as a potential model, where the authorities have committed around $10 billion to the industry.

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• Topics
• Venture
• Southeast Asia
• Early-stage
• Venture
• Southeast Asia
• Vertex Management (II)