FEBRUARY 7, 2000 VOL. 155 NO. 5

Next, Call in The Venture Capitalist
AsiaTech takes high-stakes gambles on Internet firms

To Hanson Cheah it seems like yesterday--the moment he conceived the friendship that may soon make him a multimillionaire. It was 1985, by the banks of Boston's Charles River at the Massachusetts Institute of Technology. Penang-born Cheah was a sophomore studying robotics and dabbling in M.I.T.'s ground-breaking Project Athena, an electronic network pioneer. He met a freshman from Singapore, Wong Toon King, and invited him to join his Phi Beta Epsilon fraternity. Wong demurred. He was studying on a government scholarship and worried that the frat-house party scene might affect his grades. "I thought he was a pretty cool guy until he turned us down," jokes Cheah, now chief executive of the Hong Kong venture capital group AsiaTech Ventures. "I think he figured that the wild stuff wasn't quite what his sponsors had in mind for their model Singaporean."

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Still, the two became friends and stayed in touch after returning to Asia. Wong did his required military service and joined the government's National Computer Board, destined for a cookie-cutter career in Singapore Inc. Cheah returned to Malaysia and took a job at Solectron, a technology assembler in Penang. Then came the Internet explosion and the celebrated market debuts of pioneers like Netscape and Yahoo! The two M.I.T. graduates quickly saw the light. "The Net was happening to guys we knew, or at least knew of," recalls Cheah. "We figured this was something we were born to do."

Cheah raised $18.5 million from family friends and associates in Taiwan and launched AsiaTech Ventures, the region's first venture capital company geared exclusively toward Net investments. In Singapore, Wong quit his job to set up SilkRoute Holdings http://www.silkroute.com/, a pioneering Web design company, which in turn created Advanced Manufacturing Online, an online component exchange system that matches users and suppliers. When Cheah learned what his ex-schoolmate was up to, AsiaTech put $1 million into AMO. It was the first Asian Internet venture for either man and, coming only a month after the start of the Asian financial crisis, it looked especially risky.

Today, that leap of faith seems cheap indeed. British venture capital group 3i and American investment firms Morgan Stanley, Doll Capital and Goldman Sachs invested a total of $20 million in AMO last July. Hong Kong tycoon Richard Li recently paid $27 million for 25% of SilkRoute, whose main asset is 38% of AMO. Using Li's valuation, Cheah is thrilled at what he already estimates to be a "12-bagger," a return 12 times what he initially put into AMO. No matter that neither company yet makes a profit. Few Net companies do. But Cheah, 34, has no intention of selling out. "I'm waiting for a much bigger payday," he says.

AMO plans to list soon on New York's NASDAQ. Analysts predict the transaction will rank alongside the $84 million raised by Hong Kong-based Chinadotcom, Asia's biggest Internet IPO. "Most of the Net's values are unsustainable," says 3i's Southeast Asian director Alastair Morrison. "But these are real guys running a real business, and we won't be in a hurry to sell."

A successful debut for AMO would confirm AsiaTech's reputation as one of the region's premier venture capital firms. Cheah and his 20 fellow dealmakers have planted $75 million--half of their total investment fund--in Internet companies in Asia and the U.S. Along with Softbank (which seeded Yahoo!) and Pacific Century CyberWorks, AsiaTech is among the region's biggest homegrown Net investors. The Asian financial crisis actually helped the business. "Everyone else was too distracted fixing problems to think about venture capital," Cheah says.

There is a shortage of good local prospects, however. Cheah and Morrison reckon they discard about 95% of the 300 or so business plans they see in a year. In the past three years, 3i has staked just nine Asian firms. "When you take out all the froth and bubble, the market's still pretty thin for worthwhile companies," Morrison says. Cheah is gearing up for what he describes as the "harvesting period," when the seed money he has provided comes back to him several times over in an IPO. "The number of Asian Internet IPOs in the region and on NASDAQ will at least quadruple over the next year," he says. That will more mean new business--and a lot more competition.

COVER STORY
• First, Create the Hot Start-up
• Then Pray for The Angel
• Next, Call in The Venture Capitalist
• Cozy Up with The Incubator
• Now You Are Ready for The Listing
• Or, You Can Just Sell Out

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