On his fifth visit to India Ping Wang chose Varanasi as his touch down point. The holy city is India’s cultural mecca in many ways. Three days later, the associate partner at the Korean Investment Partners (KIP), was in Bengaluru to meet entrepreneurs. South Korea’s biggest venture capital firm has over USD 2.5 billion worth assets under management worldwide with sizeable positions in biotechnology, mobility, cryptocurrency, online gaming, etc.
In 2018, after five years of scouting, KIP decided to make its first investment in India. Wang, who heads investments in the US, China and India, said KIP is real selective about picking companies to invest in.
In an exclusive interview with The Passage, Wang talked at length with Moulishree Srivastava and Avanish Tiwary about KIP’s 15-year plan to become the top investment firm in the country. He believes the Korean VC firm will help India to produce a USD 100-billion companies just like China’s Tencent and Alibaba.
The Passage: Why did you choose to invest in HappyEasyGo, an online travel company?
Ping Wang: HappyEasyGo was our first bet in India. It is a fast-growing technology company with special focus on the consumer market. The traditional online travel agencies have not seen that kind of growth in a long time. Once HappyEasyGo is established in India market, it’s going to offer more services, and then target Southeast Asia. We did our due diligence on India’s culture, people and the ecosystem and also met other investors to understand the market.
The Passage: How do you see Indian market shaping in the coming years
Ping Wang: India will see huge growth in the next 5 to 10 years. The economy is going to be just fine as long as the political system remains undisrupted.
GDP per capita and overall GDP in India is similar to China’s in 2004-05. We base China in 2004-05 as a frame of reference to figure out India’s future course.
In 2000, Chinese companies were copying their US counterparts. Right now, a lot of Indian companies are copying Chinese firms. By 2004-05, unique companies started to emerge in China. Companies like Alibaba and Tencent have their own way of doing business. I expect the same thing to happen in India in the next few years. We are trying to find unique companies with good business models.
The Passage: Right now, are there any Indian companies with unique models?
Ping Wang: Not yet. However, I think companies like Zomato could become a major player outside India including the US and the UK. The US company Yelp is not doing well. The Chinese company Dianping is beset by language barrier. Hence, Zomato stands a good chance to make a mark.
In 2004-05, the Chinese companies were reluctant to venture out. Five years later, nearly all of them wanted to go global. Indian ed-tech startups – with valuations higher than we expected – interestingly have US customers. A few rake 40 to 50% income from the West. We never saw this happen in China.
The Passage: How big is your India team?
Ping Wang: We have about five people constantly flying into different cities in India, mostly Gurgaon and Bangalore. We are in the process of setting up a local team here. We have been in China market for over 10 years and right now we have about 10 investors with around 30-50 deals a year. So everybody can do around three deals. And for the rest of the world, we have about 40 something investors doing 130 deals.
In India, we need at least three investors if we want to 10 deals a year. If we have probably four or five of them flying back and forth, and two or three dedicated to India market, we can close around 20 deals a year.
Maybe in two to three years, we can raise money locally here as well.
The Passage: Are you looking for an India head?
Ping Wang: Mostly, we are going to recruit a senior investor locally to head our India operations.
If we hire a senior hand in India, we expect the person to be very experienced. If we hire somebody with less experience, then the person is going to get trained in China or in Korea for at least a year. Training an investment manager is very expensive. We expect to burn USD 1-2 million to train one investor.
The Passage: What is your fund size for India?
Ping Wang: We are expecting to invest in maybe five companies this year in India. We have set aside USD 30-40 million for India. Last year, we invested in 130 companies worldwide.
India is still new to us. To begin with, we would invest anywhere between USD 3 million to USD 8 million. Later on, we expect to do early stage investments (Series A) to the tune of half a million to USD 2 million. And based on opportunity, we will invest USD 20-30 million. In two or three years, we will build a dedicated fund for India.
We have around 40 active funds right now. Throughout the history of the company, we have managed over 60 funds. Every year, we raise two to three new funds. And every year two to three old funds get expired. So we liquidate the funds and raise new funds every year.
If we invest USD 10 million in an Indian company, we will probably use 5 to 10 different funds. Maybe two funds from China, three funds from Korea, one fund from Singapore—each fund putting USD 2 million to pump USD 10 million into the company. That way, we ensure all the funds have more stable returns.
The Passage: India has a lot of Chinese and Japanese investors. Do you think you were a tad late in making an entry?
Ping Wang: No. The number of investors is much less than what you see in China or the US. Right now, there are around 50-100 investors in India. Of which, active investors amount to less than 50. If you look at China, there are probably 500 such investors. It is still very early on in the game. When we entered China, we had a 30-year plan: 10 years to establish, another 10 years to become tier 1 and another 10 years to become number one.
We are looking at 15 years to become the top investor in the India market. Probably, five years to become tier 1—which means we invest in maybe 20-50 deals a year in India market.
The Passage: What are the specific sectors you will be focusing on in India?
Ping Wang: We usually go after TMT (Technology, Media and Telecom) sector or bio sector. Indian drug industry is a little different from the rest of the world. We are trying to figure out how that is going to go. But for TMT, it is pretty much the same as any other country.
US, China, and India have large domestic markets and a crop of new entrepreneurs focused on local markets. If you look at Europe and Southeast Asia, you have to go international at the first day to become a sizeable company.
The Passage: How do you get intel on new startups and entrepreneurs?
Ping Wang: Through investors (mostly), financial advisory firms and entrepreneur networks.
We have met over 100 companies last year here. Usually, the turnout ratio of our investment is two out of 100 companies we meet. We are quite selective right now. We chose companies with already a round in the kitty or at least seed round from a reputable firm.
Usually, when we go to a new country or territory, we start with series B, and once we understand more about the people, the culture, the economy, etc we go to series A, C and D. That's our strategy. Because for series B, the other investors have already done the fundamental due diligence on the entrepreneur and (by that time) the business already starts showing some numbers.
The Passage: Do you think deals here are expensive?
Ping Wang: Yes. Some deals are overpriced. There are a lot of good companies, but very few IPOs. Even the Indian colleagues are not that familiar with IPOs. For us, we have invested in over 800 companies in the past 35 years. We have over 200 IPOs in global markets, mostly Korea, but also in the US, in NASDAQ, in New York Stock Exchange, in Hong Kong, in Singapore, in Japan, and even in Taiwan. But in India, we haven't seen too many IPOs. We are going to change that.
Personally, I do not like unicorns. The returns for the investors don’t live up to the hype and they are not regulated by the market. In the past five years, it has become a big problem in the US and China.
The unicorns’ valuations get halved by the market during IPOs and all the later stage investors end up losing money. It is not a healthy trend. If investors lose money at the IPO, the entrepreneurs probably do not understand the heavy price they have to pay. At that stage, nobody is going to invest in you.
The late stage investors who lose money at IPO are going to ask the company to redeem or make a difference in terms of investment. Nobody is in the business of losing money, so somebody has to pay. We haven’t seen this in India, but in China it happens a lot.
In that particular space, there is an arrangement between the late stage investors and the entrepreneur to make sure that they make some kind of profit, at least not loss. Otherwise, they are never going to come on board for the IPO.
The Passage: Where does India stand as compared to other Asian markets?
Ping Wang: I expect a world-class company from India. And right now, honestly, there aren’t any. Flipkart and Zomato are still way too small. I expect to see companies like Alibaba, Tencent—a hundred billion range company—to show up.
Companies like Swiggy or Ola are always going to be a small potato unless they go public. We have not seen any mega IPO yet. Companies have to pass the unicorn status and really become a public company to be able to utilise the real financial resources.
The Passage: KIP manages funds for government bodies and in few cases are backed by them. Will you also work with Indian government?
Ping Wang: We are backed by the government in a certain sense. We help the Korean government to manage some of the social security funds. In China, we work with four municipal governments. We help the local government to develop the economy and hi-tech businesses. We co-invest with governments in long term to create funds in local provinces or cities. We make sure our money is partially invested in this particular sector in this region. And we manage the money well. So the local government also makes good returns on their investments.
In the past 33 years, we have managed 60 plus funds. Out of 60, more than 20 have already expired. None of our funds ever lost money. So our average return is about 18% IRR, compound 18% per year on an average. That’s why governments are keen to invest with us.
We have met some Indian government officials. We are hoping to replicate the Korean and Chinese model here. If Bangalore wants to create a fund dedicated to helping the local economy, we are willing to invest together with government and bring international entrepreneurs here.
Many countries have a fund of funds (FoF), and they invest in global VCs who have consistently performed well. Usually, the top 50-100 funds make good returns.
I think the inflow of money to India is still small. Most of the GPs are still investing in the range of 5-10 deals a year and once the economy grows, you will see intensive investment in the range of 50-100 deals a year.
Our Indian counterparts invest in less than 20 companies a year. Right now, the investment is not that intensive yet. We expect to see VCs to catch up to a-week-a-deal sort of speed.
The Passage: How is KIP’s strategy different from Chinese investors like Tencent and Beenext?
Ping Wang: Alibaba or Tencent are neither typical venture funds nor GPs. They invest for strategic purpose and make money in other ways. For us, it is pure play. We invest in the company, we invest in equity, and the company has to grow. The equity has to become more valuable. It has to reach a certain stage, (so) the global equity market will accept the company to be traded, either in the US, Hong Kong, Singapore, or may be even in the domestic India market.
The Passage: Is India innovating enough in biotech space?
Ping Wang: We are still learning about the sector in India. It is so different from the rest of the world. Biotech is all about IP now. In a first, the Indian bio sector is providing services for the US. But it’s still early in the day. If you want to create big, mega companies, you have to make your own drug and protect the IP. If a company discovers a new drug at a very high cost, but cannot protect their IP, it will not work. And if Indian government does not protect the IP for the American drugs, then will America honour the Indian IPs? There are a lot of questions. But I am pretty sure smart Indian entrepreneurs will find a way to solve this issue.
The Passage: What is the one standout feature of Indian market?
Ping Wang: India has the best human resource. Just look at the top Indian executives in the US.
We haven't seen that kind of capacity in Korea, Japan or China. I expect good entrepreneurs to show up locally and at least some Indians who have become global leaders to come back to the Indian market. We have seen the Chinese-Americans invest in China—although they are less successful than the Indian counterparts.
So I expect, maybe someday we can engage with some of the returnees. They do not have to physically return, but I expect them to give back their knowledge, their management skills and their money power to the India market.