Singapore: India is about 10 years behind China when it comes to the ecosystem for start-up companies, said Chua Kee Lock , group president and chief executive officer (CEO) of Vertex Venture Holdings Ltd , a subsidiary of Temasek Holdings Pte. Ltd , Singapore’s state-owned investment company.

Vertex has invested about $40 million in Indian start-ups since 2010.

Edited excerpts from an interview:

The Vertex group invests in both companies and venture capital (VC) funds—what is the break-up? Geographically, what is the break-up of your investments? What are the returns on investment for the group? In your website, you describe yourself as a “true venture capital" firm—what does that imply? Unlike other VCs, you also invest in sectors other than information technology (IT).

Most of our money is direct investment—about 70-75% is put directly into companies and, approximately, about 25%, we put into VC funds. Since 2008, we have invested about $500 million in different companies. We will be investing about $300 million more. Today, about 60% of our money is invested in China, about 10% in India and perhaps 10% in South-East Asia and Taiwan, another 10% in Singapore. Going forward, we will maintain these percentages when we invest more in these markets. On an average, we stay invested in a company for seven-eight years. When it comes to returns on investment, it differs from fund to fund. With our latest fund, the returns are about 30%. Generally, our average returns on investment should be around 20%. We call ourselves a “real" venture capital firm because VCs are all about creating or building great companies—that is the key to who we are. In Asia, there are many players who are very short-term in their mindset and, in the traditional sense, they cannot be considered as venture capital players.

Most of our investments are in the IT space. We are about 75% IT based. In the IT space, we are predominantly software related—we have invested in hardware companies, too. We have also invested in some healthcare companies.

Since you invest in companies in both India and China, how is the start-up scene in both these countries? What are the similarities and what are the differences? How much has Vertex ploughed into Indian companies so far?

India always has a huge potential because of its market size. But the main challenge for us in India is to figure out what companies to invest in, and at what valuation to do so. Most times, the valuations are excessive. Our China investments are driven by opportunities. It is also a large market. In South-East Asia, too, there are opportunities, but occasionally there are challenges like the political situation in Thailand currently. But China, over the past years, has been consistent, and this has led us to invest more in China. India is still trying to find its own place when it comes to the start-ups. China was in that situation about 15 years ago. If you look at the start-up ecosystem, India today is about 10 years behind China. Many people today compare China with Silicon Valley—it has so many start-ups, lots of companies with unique models—Chinese companies can create interesting opportunities by themselves; and in that sense, they are a lot stronger than India. But Silicon Valley is still ahead. That is where lots of innovation is still coming from. China is closing the gap—because of its large market size, they are able to create their own unique business models and capabilities.

Since 2010, we would have invested about $40 million in start-ups and companies in India. In the next few years, we will see our allocation to India will be roughly a similar amount—we won’t be increasing it by a lot.

As an investor, what are your concerns when it comes to India?

India has a lot of good entrepreneurs. It has a lot of smart people. The concern on India is that sometimes, the rules can change suddenly—the regulators decide to step in and do certain changes. For instance, some time ago, they changed the rules for Indian companies incorporated in Mauritius. All these kind of things won’t help—knee-jerk changes are a matter of concern. Even for Indian start-ups, it will be of concern if the rules and regulations keep on changing.

When will we see another Alibaba from Asia? Or, when will we see Asian start-ups, especially in the IT and Internet space, reach the scale and size of some technology companies in the West?

Most people forget that when Alibaba was very small, in their initial years, they were able to raise between $300-500 million from Yahoo and SoftBank. It is not about China’s size, but also about money. That they got Yahoo and SoftBank to put in this kind of money was important—today, I am not aware of many companies that are getting such kind of funding at the early stage. But India has two such companies—Flipkart and the other is Snapdeal. Both (Flipkart and Snapdeal) are burning a lot of cash, whereas Alibaba was able to demonstrate very quickly that their business was profitable. Indian e-commerce companies have to find the right balance between burning money and being profitable. It is difficult to tell how the battle between e-commerce companies in India will eventually turn out. The question will be how to reach profitability. India has space for more players in its e-commerce space. None of India’s e-commerce companies are profitable yet—they have to demonstrate profitability at some point of time.

You came to Vertex Venture in 2008. In the start-up world, what has changed since then?

Since 2008, there is not much change in the start-up world. New players in all sectors continue to come in, many old players are still there, certain players get marginalized and have shut down. There is always this process and this is constant. In 2008, the valuations were very high. But post Lehman Brothers (which collapsed in September 2008), everyone became more disciplined. Now we are getting back into that 2008 environment all over again—too much money chasing too few start-ups and valuations have become very high across the globe and even in Asia. It is a cycle we come across every once in a while.

Is this true for India also: too much money chasing too few ventures?

If you compare India with China, then no. But if you compare India with itself—from where the country was a year or two ago—then yes, valuations of Indian start-ups and other companies are much higher now.

In the past, we used to see many start-ups in the region shift base to Singapore because of the ecosystem here—high-speed broadband, easier access to funding, quality educational institutions, among others. But now we are seeing many start-ups go back to their home markets—be it Indonesia, Thailand, Malaysia or India. Many are headed back because of the size of their home market when compared with Singapore.

Singapore will still continue to attract a lot of companies—start-ups will keep coming here because the laws are very clear, the intellectual property protections are very strong and there is a lot of government support. The government here is willing to find ways to help start-ups and this will continue for a while. Singapore will continue be a place for opportunities for the next few years.

Last year, you were quoted as saying that the Singapore government should set aside more resources to help fund start-ups. You also said that, going forward, government support would be crucial for Singapore as VCs will be allocating most of their funds to India and China, overlooking South-East Asia.

The larger VC funds are focused on the two big markets—China and India. That trend will not stop and it will only continue. In Singapore, if you talk about incubation and start-up funding, the government has done a good job—these are well funded. But funding is not just giving companies $500,000 or $1 million—there are several rounds of funding that is required—maybe three, four or even five rounds, before companies can be successful. When it comes to additional funding or subsequent rounds of funding, be it in Singapore or South-East Asia, it is not as easy when compared with India and China. That is why I said more government support is needed here.

But there is also a view that many start-ups here are kept alive due to government funding beyond their normal lifespan. In the traditional sense, like in Silicon Valley, if their business model was suspect, they would have folded up quickly, as the market would have determined they cannot continue.

That is always a concern—when you have too much money chasing too little companies, even the bad companies get funded. This is something that we cannot help. In a market like this, it is bound to happen. If there is too much money chasing start-ups, it is not good, and if there is very little money chasing them, that is no good also. We need a right balance and we have to figure out this ourselves.

Among all the companies that you have invested in, were there any wild bets?

Yes, one was Grab Taxi (a Malaysia-based taxi booking app). We were “Series A" investors and we consider it a very successful investment. In South-East Asia, Grab Taxi is No.1 in many markets, including Singapore, the Philippines and Malaysia. But, in Singapore, there are many other such apps and everyone is trying to create a lot of noise—they are trying to buy their way in by offering discounts and other freebies. But look at the China experience. There were two taxi booking apps there—they were competing against each other and trying to buy customers and, after 12 months, having spent a couple of $100 million, they realized this kind of business will have to stop. Every player comes to the market thinking they have a unique solution—then there is a struggle to get market share, and this is a normal phenomenon and we should expect more to this.

Singapore is known for its academic incubators. I see a lot of events being done by the academic-led incubators; but in your view, have they managed to produce successful start-up companies? Would you consider them a success?

There are several start-ups that came from our university incubators and have done well. The successes may be small, but the issue is that people expect quick results. It takes a long time to build a company. After three years, they expect to see a Google or an Alibaba. It took Alibaba 15 years to get where they are—they did not happen in two years. But across most of South-East Asia, and not just in Singapore alone, people expect that in three years start-ups will be successful.

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