Asia’s tech shakeout leaves solid values behind

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"There certainly was a gold rush at one point in time in a lot of countries," Lucas Fuller, managing director at TiNSHED, an incubator firm in Hong Kong, told Reuters.

"But the lower quality opportunities have disappeared and people have given up on them, so generally now the quality of the opportunities is higher and the valuations are lower," he told Reuters. Incubators say the quality of business ideas has improved substantially as a violent tech stock upheaval weeds out unworthy funding candidates and brings down costs.

"If you’re really trying to invest from a value point of view in finding new innovation and finding a new market opportunity…then right now is a better situation than a year ago," said Brett Rierson, a partner in IncubAsia in Hong Kong.

Incubators nurturing startups: Incubators contend the amount of money being raised by venture capitalists has fallen in the wake of the tech blowout which has swept across the globe. Venture capitalists need strong stock markets to float the companies they have nurtured and realise the return on their investment.

But this year the investor retreat from the technology sector has taken a heavy toll on key tech-dependent stock markets such as those in Korea, Taiwan and Hong Kong.

Korea’s Kosdaq over-the-counter market has lost almost 70 per cent so far this year, while Taiwan’s benchmark TAIEX is languishing 45 per cent below the peak hit in mid-February. Hong Kong’s Growth Enterprise Market (GEM) has dropped 64 per cent since its launch on March 20.

"If you compare the last two or three months to the period of the previous three months before that, there has been a slowdown in the amount of investments," said Joey Borromeo, Chief operating officer at techpacific.com.

But venture capitalists are optimistic — even bullish –on the growth prospects of companies in the Internet and communications business. "I would also say that Asia has awoken to the fact that itis actually, with Scandinavia, one of the leading areas in the world for the intersection of wireless and Internet technology," said IncubAsia’s Rierson.

In fact, private equity is on the rise in Asia with US $14 billion raised so far this year, compared with US $ 12 billion at the same time a year ago, according to Asian Venture Capital Journal. "Will the slowdown (in fund flows) continue for long and is the investment in the Internet over? Clearly not," Borromeo at techpacific.com said.

China offers opportunity: Asian venture capitalists see China offering good investment opportunities as the country continues to open its doors to foreign capital ahead of its entry to the WTO. "Almost regardless of what happens on the legislation side, China has opened up to the Internet," IncubAsia’s Rierson said.

"PC adaptation in China is just skyrocketing… there’s absolutely huge market efficiencies that the Internet can drive in China," he added. John-Paul Ho, Chief investment strategist at Crimson Ventures which manages US$435 million in Silicon Valley and Asia, said China had potential to emerge as a source of engineering and technology talents, not only a source of low cost labour.

But despite a flurry of optimism among venture capitalists, bankers say cash-flush investors are still wary about beefing up their exposure in Asian technlogy-related assets in their portfolios. "It’s a loaded gun," said Brooks Entwistle, managing director and co-head of the Asian High Technology Group at US investment bank Goldman Sachs, speaking of the uninvested dollars burning holes in private equity accounts around the region.

"This party happened so quickly here — on the up and onthe down," Entwistle told Reuters on the sidelines of the Internet World Asia conference which wrapped up last Friday.

This makes it difficult for incubators and venture capitalist to have a clear view on exit valuations. While great ideas can still get funded in Asia, Entwistle said, "at every stage of the game the bar’s been lifted."