AsianScientist (Jan. 25, 2018) – With the dot-com bubble in the US just beginning to pop, the year 2000 was not a good time for an internet company in search of money. But against these odds, a small search engine company in Beijing, China hit upon a stroke of good fortune—a US$7.5 million investment from venture capital (VC) firm Draper Fisher Jurvetson (DFJ) ePlanet Ventures.
Today, Baidu—you may have heard of it—is often referred to as China’s Google, with some 300 million active users worldwide and a market capitalization of more than US$80 billion.
“It was a very strange time in history. Anything that had ‘dotcom’ in the name would explode in valuation, mostly without good reason. Many of those business models would never see the light of day,” said Dr. Finian Tan, then Asia Pacific head at DFJ ePlanet Ventures, on his decision to make the firm the largest shareholder in Baidu.
Given the precarious climate, Tan focused on what he considered certainties: first, that the internet would grow; and second, that so would China.
“I asked myself what I could invest in that would surely make money if these two things happened.”
His conclusion: search, what Tan calls the “operating system of the internet.” Once that was settled, the choice was simple—based on the purely objective measures of speed and relevance, Baidu was an order of magnitude better than any other search engine on the market, said Tan.
This knack for educated crystal ball gazing, driven by a combination of technical insight and business acumen, has served Tan well. Today, the 55-year-old Singaporean is chairman of Vickers Venture Partners, a VC company he co-founded in 2005. In October 2017, the firm closed its fifth round of funding at US$230 million in pledged capital, making it the largest privately owned fund yet to be raised in and operated out of Southeast Asia.
A career grounded in tech
While a large part of investing in early-stage companies revolves around finance, Tan actually got his start in a much less glamorous field: soil mechanics. A civil engineer by training, he earned his PhD degree from Cambridge University in the UK, studying how cyclic loading—the application of continuous or repeated forces—causes instabilities in buildings and the soil they stand on.
Tan’s thesis advisor, Professor Andrew Schofield, pioneered the use of huge geotechnical centrifuges to simulate stresses and strains on soil. Manipulating the soil samples as they spun required the use of remote-controlled robots, which the lab’s researchers often had to make from scratch.
“I used all my engineering skills and all my engineering education,” recalled Tan. Upon graduating, Tan left academia for stints in business positions at Shell and Goldman Sachs.
He returned to Singapore in 1996, and joined the Ministry of Trade and Industry (MTI) as deputy secretary the following year.
“MTI was a very enriching experience—part of my role was to help turn Singapore into a Silicon Valley for Asia,” said Tan.
During his tenure there, he worked to cut red tape for startups and VCs, and chaired the US$1 billion Technopreneurship Investment Fund aimed at jumpstarting the VC industry in Singapore.
“I was pushed into the center of startup and VC activity, and I really fell in love with it,” said Tan. “When I was in Goldman and Shell, I was making use of my finance skills, but being a tech guy with a PhD in engineering, I could now finally use both my finance training and my tech skills. That’s why I took to it so quickly, and why I was so passionate about it.”
The deep end
In 2000, as Tan joined DFJ ePlanet Ventures as the firm’s founding partner for Asia, the new millennium’s turbulent tech climate was leveling the playing field for greenhorn venture capitalists like himself, he said.
“It was a time when China and the internet were exploding, so I could get into it from the ground floor just like everybody else. Even if you were an experienced venture capitalist, the internet would have been totally new to you.”
The Baidu coup, together with two other “super home runs”—digital media company Focus Media and digital entertainment provider Kongzhong—made DFJ ePlanet Ventures’ Asia portfolio a force to be reckoned with, and gave Tan the confidence to strike out on his own.
At Vickers Venture Partners, Tan is now scouting out deep tech investments—companies based on unique, patentable science that is difficult for rivals to reproduce.
“A rising tide lifts all boats, and also attracts all competitors. If you have patentable tech, it’s easier to succeed, otherwise it’s just first-mover advantage,” said Tan.
Tan is far from the only investor to recognize this. According to VC database and trend-watcher CBInsights, investments in deep or ‘frontier’ tech leapt from US$104 million in 2011 to US$3.5 billion in 2015—a reflection of the industry’s willingness to bet big on truly disruptive technologies despite the considerable resources and long timelines involved in getting them to market.
With deep tech’s megatrends—the inevitable proliferation of artificial intelligence and the Internet of Things (IoT), for example—becoming clear, Tan is applying the same thought process that led him to invest in Baidu: “You begin with a trend that you know will happen for sure, and then you make derivative statements that follow from the first guaranteed statement.”
Take IoT, for instance. As the number of small, connected sensors and devices grows into the billions, there is a clear market for new types of processors—quick, light, energy-efficient and extremely secure alternatives to the SIM card technology now used in many industrial IoT settings, says Tan.
Vickers Venture Partners is thus investing in Skyroam, a Shenzhen-based company developing SIM card-less processor technology, as well as in San Diego-headquartered AgilePQ, which has invented IoT encryption algorithms that can fend off attacks even from quantum computers.
An ear to the ground
Despite their newfound appetite for deep tech, VCs in search of quicker returns and a diverse portfolio of investments are unlikely to neglect consumer tech—ride-hailing services, online marketplaces, digital entertainment startups and the like.
According to Tan, building a consumer tech unicorn requires a different set of skills—a combination of global trendspotting and an innate intuition about how these trends can be applied to solve local problems. Indonesia’s first billion-dollar tech startup Go-Jek, for example, took a leaf from Uber’s success in the US, but used motorcycles in place of cars to navigate Jakarta’s perpetually congested streets.
Tan thinks it makes sense for Vickers Venture Partners to focus on consumer tech in the context of emerging markets, especially in Southeast Asia, where he and many of his team members hail from.
“We’re born and bred here, so we know where all the pain points are, and we can use our instincts,” he said.
Indeed, Southeast Asia’s biggest successes—transportation services Go-Jek and Grab; online marketplaces Tokopedia and Carousell; and entertainment and e-commerce platform provider Sea—have thus far all involved technology targeted at consumers, an indication of the region’s enormous potential as economies grow and millions more come online.
Minding the gap
Still, given the limited potential for true innovation in consumer tech, there is a strong case to be made for nurturing deep tech in Southeast Asia and other emerging markets. But it can take decades of investment in research, education and infrastructure to create a technology hub on par with the likes of Silicon Valley, Boston, Beijing or Shanghai, said Tan.
Gaps in the tech ecosystem are apparent even in Singapore, Southeast Asia’s wealthiest country. The city-state has invested heavily in basic research and, on the other end of the technology continuum, also attracted the manufacturing arms of large MNCs.
“It’s a bit of a barbell—we have the blue skies academic research and the development needed for MNCs and SMEs, but we don’t really have the commercializable R&D going on in the middle that results in startups. That’s a gap we need to fill,” said Tan.
Tech financing in the region suffers from a similar problem, he said. While there are opportunities for early-stage startups and bigger, more established companies looking to scale, companies at in-between phases of growth often struggle to find funding, and thus often end up relocating.
In Tan’s opinion, small countries like Singapore need a much bigger critical mass of talent before they will be able to make their presence felt on a global stage. Reaching this goal requires not only an openness to talent from around the world, but also infrastructure—transport and housing, for example—robust enough to support the larger population sizes necessary for economic growth, he said.
Despite these complex and long-term challenges, Tan remains optimistic about the region’s prospects. After all, the solutions to the human capital and infrastructural problems at hand are—unlike deep tech—largely a matter of careful execution, rather than of innovation.
This article was first published in the January 2018 print version of Asian Scientist Magazine. Click here to subscribe to Asian Scientist Magazine in print.
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Copyright: Asian Scientist Magazine. Photo: Cyril Ng.
Disclaimer: This article does not necessarily reflect the views of AsianScientist or its staff.
