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DECEMBER 22, 2000 VOL. 26 NO. 50 | SEARCH ASIAWEEK
A former venture capitalist checks for damage after Asia's tech wreck By DAVID WILLIAMS ALSO Dotcom Demise: An inside look at what went wrong for Hong Kong-based dotcom SportsNetGlobal • Back to Basics: An Asian Internet start-up's struggle for funding ends in disappointment • Interview: AsiaTech's Hanson Cheah [web-only exclusive] Surveying the bombed-out landscape of Asia's fading Internet start-up craze, one is inclined to ask the inevitable question: Who is to blame for this mess? The answer is similarly inevitable: No one in particular, but a lot of people and circumstances in general. That's just the way speculative bubbles are. That does not mean, however, that nothing can be learned and nothing good can come from this unusual period in the region's financial history. Certain characteristics of the dotcom boom stand out. For starters, while previous waves of entrepreneurship were led by company founders who were typically scientists or engineers with decades of experience, this boom has been primarily a phenomenon of the young. The combination of a brand-new communications medium, coupled with the relatively short time needed to master the basics of computer programming, has meant the founders of the average Internet start-up often lack the years of experience which can help a company to survive its perilous first few years. Youthful managers are not automatically a bad thing, as long as they team up with seasoned executives. That's what happened at two of the Internet's most successful companies, Yahoo! and eBay. But at a high proportion of Asian start-ups, founders have not been willing to share power. Often, this is due to culture. Asia is a region where the family-run company is the norm and outsiders are rarely offered a seat near the helm. Among the top three China portals, only Netease has effectively transferred all of day-to-day control to veteran professional managers. But there are exceptions. In India, most of the big Internet names such as Satyam Infoway and Rediff were founded by experienced management teams — and the low turnover in their executive ranks reflects the stability that leadership imparts. But where callow youth prevails, success is harder to come by. Mod-squad dotcoms have been unable to grow quickly because their leaders could not master the managerial intricacies posed by ever-larger operations. The learning curve is too steep. When funds are flowing in faster than they can be spent, many mistakes can be papered over (with currency if necessary). When the funding dries up, the impact of those mistakes is amplified — both operationally and in the media spotlight. Are the founders alone to blame? Perhaps, if they were unable to acknowledge their shortcomings and hand over the reins to surer hands. But in many cases, they have had accomplices. The giddiness of investors clearly contributed to the fraternity atmosphere in dotcom boardrooms. Most top-tier venture capital firms take a direct role in locating proper managers for the companies they invest in. They insist on that role as a condition of funding. But thanks to the boom, Asia has many new money sources — in particular individual "angel" investors and "strategic venture capitalists" — who practice a more hands-off approach. Many high-net-worth angels have taken up high-tech investing as a part-time activity. Their investees receive part-time advice. Strategic investors such as Intel, Cisco Systems, Dell Computers and Microsoft have for years proven to be excellent start-up partners, adding not just management assistance but also credibility. They have technology know-how. Other firms, such as Softbank and major U.S. investment banks, clearly have financial expertise to offer. However, the high-tech bonanza inspired all sorts of corporations to set up venture capital arms. It is hard to understand how a pure property company or a mobile-phone retailer like Japan's Hikari Tsushin can add value to Internet-related investees. Even in cases where investors seized an active role in company management, that role has often not lasted long enough to be of real help. The rush by private investors to cash in on inflated IPO prices meant companies were taken public while they were still in diapers. In a sense, long-term oversight was shifted to public shareholders, which is to say there was plenty of transparency but little control. Given the excesses and the resultant high-profile failures, it's hard not to conclude that Asia would have been better off if the boom had never happened. But a lot of good has come from the festival of greed. There is now permanent infrastructure in place for future start-ups where there was none just two short years ago. This infrastructure includes not only venture capitalists dedicated to providing high-tech seed capital, but also data centers, telecommunications networks, back-office outsourcing firms and, perhaps most importantly, new stock exchanges oriented toward young growth companies. Additionally, entrepreneurs and executives who failed this time around may find themselves richer for the experience. In Silicon Valley — and increasingly around the world — a few errant ventures under the belt is seen as a plus, not a black mark, when seeking funding for future endeavors. Viewed in terms of the start-up companies themselves, a lot of balance-sheet value has been created, and a lot of value has also been created in public stock markets. Net-net, the dotcom craze has been a positive experience. As stock markets and company valuations hit bottom, it's a good time to make a mental note to be more selective in the future. But cycles, by their very nature, start again. We should not stop investing just because we are still feeling the pain of the last run-up. Entrepreneurs have it easier now than they did just five or ten years ago. Investors, made wiser by experience, should benefit as well. Williams is a former Asia Pacific partner at Draper Fisher Jurvetson venture capitalists and was previously head of Merrill Lynch's Emerging Markets Internet Investment Banking Group. Write to Asiaweek at mail@web.asiaweek.com Quick Scroll: More stories from Asiaweek, TIME and CNN
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