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GA the hands-on venture capitalist

Online, CNN Financial Network Industry Watch, 16 May 2001 -- MENTION General Atlantic Partners (GA) to anyone in Silicon Valley and they would probably be quick to inform you that as far as private equity is concerned, this is one of the blue-bloods.

In fact, Steve Hsia, chief executive officer of DeliriumCybertouch, Asia's largest e-solutions provider, in which GA has a stake, displayed a keen sense of awe when discussing the "private equity" firm.

"They're probably the biggest venture capital company in the software and e-business area and while not a very big company in itself, GA is peopled with top notch totally experienced executives who are very hands- on.

"GA does things differently from the other venture capital companies. They actually roll-up their sleeves and get involved," he enthused.

John Wong, who is a partner and heads the Asian regional office of the firm out of Singapore, would probably be pleased to hear him say that.

The former managing director of IBM in Singapore, who also headed a division of the Hong Leong bank, brings together his background in technology and finance in scouting around for potential high growth information and communications technology companies, investing in them and helping them make it big.

And unlike most venture capital companies, which would probably be happy to have one winner in every 10 investments, this firm is very picky and once it commits to a company, it puts its back into helping develop the company.

Wong told Business Times in an interview in Kuala Lumpur recently that the firm, which has some US$4 billion (US$1 = RM3.80) in new money to invest and is in total, managing some US$7 billion in funds, has a pretty good batting average when it comes to investments.

"We have a portfolio of 80 companies and in the past, have only lost money on three to five investments. Our performance is way above average," he pointed out.

Since the company is dedicated to making its investments work, it has some 75 professionals around the world, looking after the 80 investments. "That's a nearly one-to-one ratio."

It is also very careful in selecting its investments, looking for companies with either unique technology or a unique way of applying existing technology.

Which is why the company investeed US$40 million in three companies in the Asia Pacific to date and is looking at closing a major deal in China soon. But then, it only has been in the Asia Pacific region for two years.

"We don't go for quantity. Even globally, we only do 15-20 investments a year."

He added that the bite size is important and the company's global average per investment is about US$35 million, although it may be convinced to take up smaller investments if the story is compelling enough. There is a limit, however.

"We generally do not invest less than US$3 million per investment because we cannot run around and help too many companies."

And how does it decide how much to invest? "We don't go around giving people large chunks of money just because we want to invest a certain minimum amount.

"First, we determine if the business model is viable, whether it will generate revenue, real user demand and people will be willing to pay for the company's products and services.

"Having decided that it is a fundamentally sound investable opportunity, we then determine the valuation. This can be done in several ways. We can value the company according to comparable companies in the industry or we could doa financial evaluation and look at the multiples of ebitda (earnings before interest, taxes, depreciation and amortisation)."

Wong is in charge of looking out for the right investments in the Asia Pacific region. "We only look at technology investments such as information technology, telecommunications and new media which is the convergence of telecommunications and digital content."

He added that the firm only looks to invest in software and services companies and is not interested in the nuts and bolts hardware guys. "We are very specialised."

Wong added that GA is only interested in models which are regionallly or globally scalable. "The upside of investment is limited if it can only be scaled within the country."

And what are its investments in Asia at the moment? "We invested in a company in Hong Kong, Delirium, which helps companies put their businesses on the web and this company has recently merged with Malaysian company Cybertouch Sdn Bhd.

"In Singapore we have invested in i-DNS, which does multilingual domain names. Today, a large percentage of domain names are in English while a good part of the world's population speaks other languages. i-DNS provides domain names in 59 languages."

He said GA has also invested in another Singaporean company which does multilingual e-mail.

"What we go for in the Asia Pacific region is for businesses which are unique in Asia which can be replicated globally. Certainly, multi- lingual sites are stronger in Asia."

And what are its criteria for investment? "We are not early stage investors in general. The companies we invest in need to have customers, be generating revenues though not necessarily profits and proprietary software is a plus. But even if they don't own the software, it would be good enough if they are applying the software in a unique manner."

A great management team is also critical to the operation. "The management must not only be knowledgeable about their own products and services but must be able to think beyond their businesses and apply management techniques to grow their companies into really sizeable businesses.

"We will not invest in the company if its management team can only run a country-based company. They must be able to manage a global company."

And naturally, the companies it invests in should be among the top three in their chosen area of application.

And what does GA provide to its investees? "We help them in areas they may be lacking, providing them with our contacts, network and help in hiring more capable people."

He said the private equity firm also provides its investee companies with directions in technology.

Currently it has 10 staff in Asia. "We sit on the boards of our investee companies and generally take an equity of 20-50 per cent."

Wong added that the firm comes in for second round and third round funding as well.

"There is no fixed amount we invest in a year. It depends on the opportunities that come up. Last year, we invested a total of US$700 million."

While he welcomes business plans, he warned that the company is only interested in larger investments. "The danger is that we get sent hundreds of proposals and don't have time to look at them at all."

And what would tempt him to turn to the second page of business proposal? "It must have a compelling executive summary to tempt me to read further."


-- i-DNS.net shall not be held liable for the views and opinions of the authors expressed herein.

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