Walden’s chief on making 11 exits in 15 months

OVER MORE THAN 20 YEARS WALDEN International has remained focused on IT investment - including the early stage (seed or start-up), and expansion stage (growth) companies it deems most likely to benefit by both the capital it invests and the value-add experience it can bring to bear in accelerating an investee's growth.

Demonstrably, it is an investment thesis which has delivered impressive returns for decades. That's most recently evidenced by Walden's announcement that they've managed to complete 11 exits - 5 IPOs and 6 M&As - within the last 15 months.

AVCJ recently had the opportunity to chat with Lip-Bu Tan, Walden's founder and chairman, who modestly notes that their recent successes have been helped by balmy market conditions over the past year or so, which he fully expects will extend through 2011 and even pick up speed in 2012.

Up, up and away

"Venture capital always goes through cycles," he says. "And right now I'd say we're in an up-cycle. If you look at most major corporations, they're sitting on a lot of cash and starting to do meaningful acquisitions. Also the IPO market is becoming more and more open. As examples, there was the Chinese social networking entity Renren IPO, (which took place in an environment where a number of PRC internet IPOs have risen triple digits since their debuts); and of course the LinkedIn valuation, which suggests we're going to see FaceBook coming, among others. So it's an exciting time and not only for divestment. It's also opportune under these conditions to graduate some companies, either by an IPO or M&A."

As to whether the present upswing is a bubble, he admits it's very hard to tell. What is clear in the immediate sense, at least, is that the market is moving from strength to strength, with more sizeable IPOs still in the wings.

At the same time, from a VC perspective, he sees the investment side improving; so overall he's bullish. As for Walden's particular success, he adds:

"We're a little different than other venture firms in that we spend more time monitoring our investments. And most of our partners are from an operations background. So while many people have been out there raising money left and right, our focus over the past few years has been on making sure our companies are really growing and profitable, raising cash. We're always looking for quality investments, but after we've secured them we go all out to help them drive efficiency and profitability.

"Basically, we've found a formula: we're long-term investors. So with problem companies, we don't walk away. We re-double our efforts to help them grow, or find them another home."

Not surprisingly, this often affects Walden's investment timelines. Although they aim at 5-6 years, the reality is that a lot of their companies average 8-9 years. And even then Walden retains a telling presence after they go public.

"That's when they really need help," Tan observes, referencing SMIC and Sina as examples of this.

As for their investment focus, it remains on the IT space encompassing different segments from semiconductors and IT services to e-commerce and social networking:

"We've tended to stick with what we know and where we really have value to offer; that's critical and it's why companies looking to the long term, looking for the domain knowledge that can help them, often choose us."

A broadening focus

Still, in more recent times, Walden has broadened out somewhat in occasionally investing in select companies like China LiNong International, a subsidiary of Le Gaga Holdings, a Shenzhen-based firm founded in 2004 which provides organic green vegetables sold through hypermarket channels.

"It went public in the US with Sequoia and ourselves invested in it. Being in the organic vegetables business, it's not very high tech," he says with a chuckle. "But the point is that if we see an exceptional management team, we don't mind going out of our area of focus."

Semiconductors

Another area of longstanding Walden involvement, ups and downs notwithstanding, is semiconductors. Here too Tan contends that the excitement has returned:

"We have an excellent track record in the semiconductor space. So frankly, 90% of my time is spent there. The market's size along, about $300 billion, dictates this," he explains. "We haven't much competition, and we have very strong domain knowledge. And it has paid off. On our semiconductor-only investment, the fab-less semiconductor, the design house, our return is at a high point, north of 60% compounded. Obviously we want to continue that.

"But meanwhile, you have to look at China. The country imports more semiconductors that oil. Which means we're in very interesting times. I think the government there is very keen; certainly they're very cooperative with us in terms of building a fab-less industry in China. And our next two funds are going to be very focused on that. As regards partnering with the PRC government, we will be announcing sometime in July that we'll be teaming up with them to do a semiconductor fund. So watch this space."

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• Walden International
• Lip-Bu Tan