Operational since , the fund has provided financing to more than privately-held companies through direct equity investment, mainly in Southeast Asia and Greater China. In , they funded various projects to accredited investors and corporates who needed short-term funding for investments against their secured assets. This is a non-traditional source of funding and is suitable for those that are affected by Total Debt Servicing Ratio TDSR or have no track record with financial institutes.
There are also networks for you to refer to in seeking a business angel investor s. BANSEA invests in companies that offer exceptional opportunities for high returns on investment, which usually involves early-stage ventures with a high growth potential, either in a developing market especially in emerging markets or in an existing market with international expansion capabilities, and that is sustainable in the long-run. Finally, there is the option of private funds such as banks, financial institutions, and investment companies.
These sources of funding are very rarely involved in an active role in managing the business. This gives you the autonomy of conducting your own affairs in the manner you deem best, as their main purpose is to receive an attractive return usually in the form of high interest from percent on their investment.
Thus, businesses that are already established, have a good credit track record, are already generating revenue in high amounts, and have a high growth potential would benefit from such sources. Talk To Our Experts. Conversation Videos Contact Go. Business Angel Network There are also networks for you to refer to in seeking a business angel investor s. Private funds in Singapore Finally, there is the option of private funds such as banks, financial institutions, and investment companies.
Looking for Start up Funding? Let us help you find the right partner to raise your capital. Rikvin Content. Terms of Use Privacy Policy. All Rights Reserved. Picking the wrong industry or betting on a technology risk in an unproven market segment is something VCs avoid. Genetic engineering companies illustrate this point. VC investments in high-growth segments are likely to have exit opportunities because investment bankers are continually looking for new high-growth issues to bring to market.
The issues will be easier to sell and likely to support high relative valuations—and therefore high commissions for the investment bankers. Thus an effort of only several months on the part of a few professionals and brokers can result in millions of dollars in commissions. As long as venture capitalists are able to exit the company and industry before it tops out, they can reap extraordinary returns at relatively low risk. Astute venture capitalists operate in a secure niche where traditional, low-cost financing is unavailable.
High rewards can be paid to successful management teams, and institutional investment will be available to provide liquidity in a relatively short period of time. There are many variants of the basic deal structure, but whatever the specifics, the logic of the deal is always the same: to give investors in the venture capital fund both ample downside protection and a favorable position for additional investment if the company proves to be a winner.
The preferred provisions offer downside protection. For instance, the venture capitalists receive a liquidation preference. In addition, the deal often includes blocking rights or disproportional voting rights over key decisions, including the sale of the company or the timing of an IPO.
The contract is also likely to contain downside protection in the form of antidilution clauses, or ratchets. Such clauses protect against equity dilution if subsequent rounds of financing at lower values take place. Should the company stumble and have to raise more money at a lower valuation, the venture firm will be given enough shares to maintain its original equity position—that is, the total percentage of equity owned. That preferential treatment typically comes at the expense of the common shareholders, or management, as well as investors who are not affiliated with the VC firm and who do not continue to invest on a pro rata basis.
Alternatively, if a company is doing well, investors enjoy upside provisions, sometimes giving them the right to put additional money into the venture at a predetermined price. That means venture investors can increase their stakes in successful ventures at below market prices.
How the Venture Capital Industry Works The venture capital industry has four main players: entrepreneurs who need funding; investors who want high returns; investment bankers who need companies to sell; and the venture capitalists who make money for themselves by making a market for the other three.
VC firms also protect themselves from risk by coinvesting with other firms. Rather, venture firms prefer to have two or three groups involved in most stages of financing. Such relationships provide further portfolio diversification—that is, the ability to invest in more deals per dollar of invested capital. They also decrease the workload of the VC partners by getting others involved in assessing the risks during the due diligence period and in managing the deal.
And the presence of several VC firms adds credibility. In fact, some observers have suggested that the truly smart fund will always be a follower of the top-tier firms. Funds are structured to guarantee partners a comfortable income while they work to generate those returns. If the fund fails, of course, the group will be unable to raise funds in the future.
The real upside lies in the appreciation of the portfolio. And that compensation is multiplied for partners who manage several funds.
On average, good plans, people, and businesses succeed only one in ten times. These odds play out in venture capital portfolios: more than half the companies will at best return only the original investment and at worst be total losses. In fact, VC reputations are often built on one or two good investments. Those probabilities also have a great impact on how the venture capitalists spend their time. Instead, the VC allocates a significant amount of time to those middle portfolio companies, determining whether and how the investment can be turned around and whether continued participation is advisable.
The equity ownership and the deal structure described earlier give the VCs the flexibility to make management changes, particularly for those companies whose performance has been mediocre. They must identify and attract new deals, monitor existing deals, allocate additional capital to the most successful deals, and assist with exit options. Astute VCs are able to allocate their time wisely among the various functions and deals.
Assuming that each partner has a typical portfolio of ten companies and a 2,hour work year, the amount of time spent on each company with each activity is relatively small. That allows only 80 hours per year per company—less than 2 hours per week. The popular image of venture capitalists as sage advisors is at odds with the reality of their schedules.
The financial incentive for partners in the VC firm is to manage as much money as possible. The more money they manage, the less time they have to nurture and advise entrepreneurs. The fund makes investments over the course of the first two or three years, and any investment is active for up to five years.
The fund harvests the returns over the last two to three years. However, both the size of the typical fund and the amount of money managed per partner have changed dramatically. That left a lot of time for the venture capital partners to work directly with the companies, bringing their experience and industry expertise to bear. Today the average fund is ten times larger, and each partner manages two to five times as many investments.
Not surprisingly, then, the partners are usually far less knowledgeable about the industry and the technology than the entrepreneurs. Even though the structure of venture capital deals seems to put entrepreneurs at a steep disadvantage, they continue to submit far more plans than actually get funded, typically by a ratio of more than ten to one.
Why do seemingly bright and capable people seek such high-cost capital? Despite the high risk of failure in new ventures, engineers and businesspeople leave their jobs because they are unable or unwilling to perceive how risky a start-up can be.
Ten years prior, Mark Zuckerberg egged on by Sean Parker, who held a grudge against partner Michael Moritz had shown up deliberately late to a pitch meeting with Sequoia. The meeting was meant as a prank — Zuckerberg never intended to let Sequoia invest. As well as not being invited to invest in another one of the top VC deals of all time — Facebook. It was also a bet that Peter Thiel , the very first investor in Facebook, missed out on.
For context, Facebook would turn out to actually look cheap at IPO in retrospect, when its IPO valuation to trailing revenue ratio is compared to that of later exits Twitter and Snap. As he later wrote,.
We vastly underestimate exponential things. When you have an up round with a big increase in valuation, many or even most VCs tend to believe that the step up is too big and they will thus underprice it. Facebook had about 12M users as of , when it was still focused on the college market. Given that between 15M — 20M people attend college every fall, there was still a reasonable chance at this point that Facebook would remain in an academic niche and fizzle out when introduced to the wider world.
Investors had no way to know that people would stick around after graduating. In fact, because it was actually growing exponentially, and the company was undervalued.
Of course, Thiel is in part being provocative. It comes down to conviction. An investor must have strong convictions about a company to follow on in the face of a steep valuation jump.
When you have strong convictions, you can do whatever you need to do to expose yourself to as much of the upside as possible — as Eric Lefkofsky did after he helped found Groupon.
Lefkofsky had been involved in Groupon as a co-founder, chairman, investor, and biggest shareholder. He positioned himself on both sides of the Groupon deal through various privately owned investment vehicles and management roles.
The way he did this was controversial. In the end, however, he owned It all started when Lefkofsky helped get Groupon off the ground.
In , Mason told Lefkofsky about his idea for a crowd-sourced voting site called The Point. By , The Point was struggling. Lefkofsky noticed some users had used the platform to buy something together in a big group and get a discount.
Seeing that this one-off use case could spin out into a much more successful business, Lefkofsky helped Mason pivot The Point into the company that we know as Groupon. But none of those investors did as well as Lefkofsky at IPO. Lefkofsky amassed In his roles as co-founder, chairman, and earliest investor, Lefkofsky assumed the plurality of ownership in the company and saw astronomical returns.
Lefkosky cashed out part of his stake early on. In this, there were parallels to an earlier Kleiner Perkins home run, Genentech. Genentech was co-founded by Robert Swanson, who was also a former Kleiner Perkins partner.
The idea for Cerent practically walked into his office; he just needed to find the right people to execute on it. But he had another idea he wanted to pitch to Singh. Khosla had been able to see, from his experience as a VC and from the various companies that came through the Kleiner office, that telecom networks were changing. There was an opportunity to provide a better solution to the problem of connectivity — something cheaper and more flexible that could respond to growing demand.
This made it faster and easier for phone companies to transmit data. And as the number of internet hosts increased, according to a study by the Internet Systems Consortium, the need for efficient optical network technology did, too. Both Lefkofsky with Groupon and Kleiner Perkins with Cerent were able to win so big in part because they had hands-on operational roles in their investments. By doing so, they were able to expose themselves to much of the upside of their own work. When Snap Inc.
In part, Lasky was able to build this relationship because of a dispute between Spiegel and Lightspeed, which is not uncommon in the pressure-cooker world of early-stage startups, ambitious founders, and seasoned VCs. None would see returns as high as Benchmark or Lightspeed. Where others saw a fad, it saw a company. As late as , Snapchat was thought of as little more than an app for college students to send each other naked photos.
While the public and the media were underestimating what Snapchat would become, Mitch Lasky and Benchmark saw something very interesting going on. When they talked to people about the social media they used, they heard Snapchat mentioned in the same breath as companies like Facebook, Instagram, and Twitter. For investors like Mark Suster at Upfront Ventures , the associations with illicit activity were too much to get over.
He admits that this was a failure of imagination and a mistake. That was the app that Lasky and Benchmark invested in — not an app for sexting, but one that had undeniable virality and engagement levels even at an early stage. As the examples of Benchmark with Snap and Accel with Facebook show, coming in early with a large offer and actively guiding an investment to success can be a great strategy.
King set out a plan to sell Apax Partners also first invested in King Digital in , when the company was still distressed from a point of near-bankruptcy in The app had over 10M downloads by the end of the year. Within two years, it had 97M active daily users. The resulting deal happened at a premium to the price at which King had been trading.
In the end, this relationship paid off in spades. At the time, UCWeb had already been working on mobile browsing for a few years, but was generating no revenue from various consumer mobile implementations. In addition, UCWeb was white-labeling custom mobile browsers and doing consulting for Chinese telecommunications companies.
Yongfu made the decision to sell the profitable B2B unit, to allow the company to focus more strictly on consumer technology.
In , Jack Ma and Yu Yongfu met for the first time. Rumors soon arose that Morningside wanted out, with Chinese search giant Baidu was looking to buy up its shares.
Yu Yongfu told the media that despite rumors, UCWeb had no interest in selling the business. A few months later, Ma made an offer to buy the company outright, and two months after that, the deal was finalized. The acquisition was a strong strategic move for Alibaba, which at the time of its IPO had made it clear that the rise of mobile was something it needed to reckon with as a business. If it could not adapt, Alibaba would be overtaken by companies with stronger mobile offerings, such as Tencent owner of WeChat and Baidu.
The acquisition UCWeb was also especially powerful in cutting off a profitable line of business for Baidu, who had previously benefitted from being the default search engine on the UCWeb mobile browser. By , UCWeb now owned by Alibaba was still on top of the mobile browsing market by a healthy margin. This was someone who had believed in UCWeb from the beginning, and not just since the company gained traction.
It was also someone who knew the work involved in building a company in an emerging market, and who had done it himself with Alibaba. Alibaba was pre-revenue and pre-business model when Softbank invested. He met with 20 prospective Chinese internet entrepreneurs in , ultimately picking one to invest in. His name was Jack Ma. By , Son and Softbank had already made two big investments in the internet.
Both companies had been huge successes:. By , Yahoo! Son wanted to make sure he had an early stake in the Chinese internet. When Ma and Son first met a few years prior to the investment in Alibaba, Yahoo! Japan was growing quickly. Ma, inspired, started working on his own web portal for the Chinese market. From to , the internet-using population of China more than doubled from about 8. Alibaba rode the first wave of the growing Chinese e-commerce market. To onlookers, its success signaled huge market potential.
Soon other entrepreneurs and other investors wanted a piece of the pie. Some time later, the venture firm Capital Today put its support behind a new Chinese e-commerce company: JD. In , the founder of the Chinese e-commerce company JD. To do so, he turned to the Chinese private equity firm Capital Today. The decision to invest 5x as much as Liu was asking for proved to be a smart move.
Later, the retail giant sold its entire e-commerce operations in China to JD. After JD. For its part, Capital Today succeeded by investing in a tiny upstart in a market that had just lost a giant incumbent. In , eBay had just fled China, after competitor Taobao had taken over the market after a very expensive battle. Following the Taobao vs. The growth of Chinese e-commerce from to Sales grew from 56B yuan to B yuan in just the four years starting from Source: Statista.
By , however, JD. Even so, JD. Today, JD. Though JD. Of course, sometimes startups and investors stand to gain more if they sell to more dominant competitors. This is what happened when Delivery Hero and Foodpanda butted heads. Delivery Hero won out, but the investors in Foodpanda got a nice consolation prize.
Rocket had backed a company called Foodpanda that competed with Delivery Hero in the food takeout space. Until the end of , the two companies both focused on expansion, in different parts of the world:. In late , Rocket sold Foodpanda to Delivery Hero, its former rival.
This later translated to a 7. Instead of competing with Delivery Hero in the crowded food delivery market, Foodpanda was able to join forces with the company — like Uber and Didi Chuxing did in China — to get a bigger win together. That success suggests a new model for international companies.
When you try to expand one company across the globe, it can set you up to fight a continual series of guerrilla battles with local competitors. You may have higher odds bringing together many smaller companies with tight, regional network effects. Rocket — a publicly traded holding company in Germany run by the Samwer Brothers — has cloned US businesses across many categories and across the globe. The company has found success by thinking about the bigger strategic picture and being able to concede defeat in one battle in pursuit of maximizing returns where it counts, simply in terms of dollars invested.
As tech entrepreneurship takes hold across China, India, and the rest of Asia, in addition to Europe, Rocket Internet has seen big wins balance out its losses. Consolidation across different regions and countries can generate big wins for companies, as well as offering more value to customers.
This is exactly what Zayo did with another niche but burgeoning market: local fiber optics providers. At the time, the American fiber optics market was made up of regional players. Many had their growth stunted by the s dot-com boom and bust.
They were fragmented and mostly undifferentiated. Zayo came in and began consolidating the industry. It raised aggressively to acquire other fiber network and infrastructure companies, buying a total of 32 companies by the time of its IPO.
This was just as the optical networking market was beginning to recover from a post dot-com slump. The need for bandwidth from corporations and homes alike was increasing rapidly, but most of the companies building out that bandwidth infrastructure were small, straggling, and local.
Zayo set out to buy and unite them. Zayo could take advantage of low prices on companies that had been overbuilt and needed to sell, while remaining confident that there would be a need for its services in the years to come. Zayo capitalized on geographic opportunity. It identified a fragmented space and saw that companies were offering similar services. Then it consolidated those efforts and collected the returns. Sometimes it pays to enter a crowded space, if a company has the means to buy up weak players, expand, and execute better than the companies that are already there.
In another part of the world, Mobileye and its investors were able to make history by recognizing another type of geographic opportunity. But instead of consolidating a crowded space, it started building where no one else was looking. Mobileye was one of the first companies to recognize the future in autonomous driving. The company started building self-driving car technology 10 years before Google launched its self-driving efforts in Colmobil was the only shareholder not to sell any shares after IPO — its 7.
Goldman then took an approximately Despite coming to Mobileye significantly later than many of its Israeli VC counterparts, Goldman was still able to make a 10x return on its investment. And it did so by going outside the traditional hubs of startup investing and making a bold bet. Mobileye, however, began its life in Jerusalem. Despite its reputation relative to Tel Aviv, the city of Jerusalem was actually a highly fertile place for a high-tech company like Mobileye to emerge from back in Jerusalem is home to Hebrew University, one of the top-ranked universities for math and computer science in the world.
It has a highly skilled immigration population from Russia and elsewhere, which gave Mobileye a natural pool of talented engineers to pull early employees from. Ziv Aviram, his co-founder, studied industrial engineering and management and was known for leading Israeli retail companies. Entrepreneur Magazine named it as one of the top 5 places outside Silicon Valley to start a company in But geopolitical and economic circumstances made it difficult for Mobileye to raise traditional venture backing.
Mobileye was founded in , right before the Palestinian uprising from — and the bursting of the dot-com bubble in As has happened in countless fledgling startup hubs around the world, those fortunate employees — restless, experienced, and hungry — now have the dry powder to go start their own companies and make their own investments. Companies with experienced founders already have a leg up.
And as Semiconductor Manufacturing International SMIC has shown, when those founders have a chance to thrive in a needy market, they can knock it out of the park. At the time, China had just recently opened its semiconductor industry to foreign investment, and most US investors had no idea what to expect. It was uncharted territory. The US, for reference, grows at an average of about 3. Second, China was at the time consuming more semiconductors than any other country on earth.
Its rate of semiconductor consumption was growing at The stars were aligned:. Kramlich and NEA saw this when they flew over to China for due diligence in This marked a milestone for the Chinese technology market — and for early investor Sinovation Ventures , which saw up to 40x returns on its investments in the app. Having missed successes like Groupon in the US, investors will go hunting for a perfect copy overseas.
These overseas investors tend to miss the local nuance around what it takes to make a product sticky and successful. Meitu rode in the very unique slipstream of two huge forces in Chinese culture. First, there was mobile.
Right around the launch of the Meitu mobile app, smartphone usage in China started to grow exponentially. That gave the app an organic engine for growth. Second, there was a growing obsession with beauty. Around the time Meitu launched, China had a very low plastic surgery procedure per capita rate compared to its neighbors. By , 7M Chinese people were traveling outside the country to get work done.
Investor funding helped Meitu to expand on the back of photo retouching. They routinely fill the leaderboard in the Chinese app store. There are significant users bases spanning several countries in Asia, including China, India, Indonesia, Japan, Malaysia, and Thailand. The lesson here is to look at local markets and understand what will make a certain product sticky. Copycat companies only understand the idea for the company — context-specific companies can actually nail the execution.
With both Meitu and Semiconductor Manufacturing International, we saw context-specific companies that grew fast amidst bigger macroeconomic shifts in China.
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