I was in Hong Kong late last week (I was on my way to Australia where I am currently). For those of you playing along at home I spent much of my childhood living in Hong Kong – it was great to be back again. In addition to seeing many childhood friends, I was able to meet a handful of Asian limited partners and was excited to hear how bullish they were about the local investment climate.
Last week – with great fanfare – A123 Systems went public, one of the few successful venture-backed IPO’s in 2009 (my firm, Flybridge Capital Partners, has backed A123’s founder, Yet-Ming Chiang, in his new company, Entra Pharmaceuticals). The stock closed up 50% on the first trading day having raised $380 million; the company is now valued at $2 billion. A great story by any account – although given the capital requirements of the company, analysts suggest that the venture investors made only 4 – 5x their money given the company had raised $240 million of venture capital across 11 rounds prior to the IPO.
Also last week Shanda Gaming, one of China’s leading online gaming companies, went public but this company raised over $1 billion in its IPO which was ten times over subscribed – leaving the company with a market cap of $3.4 billion. My guess is the early investors in Shanda have made huge multiples of their initial investments. Year-to-date US companies have raised $6.5 billion through public equity offerings (not all were VC-backed companies) while companies in China have raised $24.6 billion in the same period. That is a staggering difference.
China’s stock market is now enormous – there are 1,600 companies with an aggregate $3 trillion in market capitalization. With great fanfare China recently has announced the new Growth Enterprises Market section of the Shenzhen Stock Exchange which has been created for smaller technology companies to go public. In fact the first ten companies to be listed are expected to raise nearly $980 million of public equity shortly.
While I was in Hong Kong I made it a point to meet with a number of large limited partners who are very active in both the Asian and US venture markets. The juxtaposition of A123 and Shanda made for very interesting comparisons. I was doing cartwheels to see the US IPO market finally starting to embrace compelling new companies and yet here was a gaming company in China which had raised nearly 3x as much capital and is almost twice as valuable – as the limited partners I met on Friday reminded me.
Is it any wonder that some Asian investors are still cynical about US investment prospects, particularly VC? As much as I believe the US venture market is very compelling now, we can not ignore that our limited partners have many competitive investment opportunities from which to choose.
Do you think I am seeing this incorrectly?