In 2008, the Goldman Sachs Commodities Trading team out of Singapore launched a search to find a junior trader. The three main criteria they searched for in candidates were
- Korean Heritage
- Understanding of Oil Markets
- Understanding of Financial Derivatives
After two years of scouring the markets with little to show, the hiring manager decided to relax the bar slightly, later saying “we figured a new hire could learn the oil bit, while derivative knowledge takes longer to pick up. And being Korean… well that’s pretty difficult to learn. So we started looking for Korean Derivatives traders who we could teach oil to.”
In early 2011 I was contacted about the role and in my first interview the manager explained to me that every trader on the desk held a different passport.
“While our colleagues in New York have all sorts of public information published by the government and various consultancies, in Asia information is much harder to come by. Because we need information from a number of different countries around the region, we make sure we have folks who can develop deep relationships in these countries to help us get a more complete picture, and Korea is a big hole for us right now.”
I had heard many times that Asia is a more opaque and more relationship driven business environment than the west, but it only really sunk in when I got the job, arrived in Singapore and found myself drinking 6 nights a week until 3am (and arriving at the office at 7am the next day) with the Korean refiners and shipping companies. I had to get my oil chops up over time, but a common cultural heritage and overlapping human network counted for much more than domain knowledge.
Because information is sparser in Asia, and because the culture leads to a focus on relationships as a competitive advantage, we have seen families that started in one line of business, then leverage their competitive advantage to enter other industries. While focus on one industry vertical is the norm for western companies, in the east a handful of families in a given country often control every industry through diversified, sprawling conglomerates.
The combination of a relationship driven culture and paucity of information leads to a unique concentration of wealth and power in Asia.
In the west the public citizens, through institutionalized asset managers, generally control the largest companies. Only 20% of the top 50 companies in the S&P are family controlled whereas that number jumps to 61% for Asian indices.* The Forbes Asia Fab 50 is even higher at 82% family controlled.
One could argue that state owned enterprises also act much more like family businesses in their control structure and “strategic” considerations than typical public companies. (Political dynasties within party and family control are also much more common in Asia than the west). Adding SOE’s to the mix ups the number even more.
So what does this mean for startups looking to do business in Asia? Building the best product and dominating with domain expertise are necessary but not sufficient. Influence sits with a much more concentrated group than in the west, so deals can get done incredibly quickly with the right sponsorship. But if you don’t have necessary access, make sure you find partners who do.
John Kim is managing partner of Amasia, a cross-border venture capital firm based in Singapore. Before founding Amasia, he managed trading and investment strategies across commodities, public and private equity, fixed income and derivatives for Mercuria Energy Group, Goldman Sachs, and Korean National Investments.
Recently, in his role at Amasia and managing the family office of his wife’s family, Kim has started researching the agritech sector for investments.
Here he tells me about the journey so far and his particular method of sourcing agritech investments.
When did you start looking at food and agriculture as an area of investment interest?
I used to be a commodities trader and ran the agriculture trading book for Goldman Sachs in Asia, so it’s a space I’m familiar with, although it never went further than commodities.
My wife’s family business, for which I’m now starting to run an investment portfolio, started out life as a food processing business. It’s since diversified into pharmaceuticals, retail, and real estate, but agriculture is certainly still in their DNA.
But it’s my day job managing Amasia, a cross-border venture capital firm, that’s really pushed me further into the sector. The firm is a quasi-multi family office as all the LPs are families from Asia, including my wife’s family.
I believe it makes sense to look for investments in the industries the LPs are involved in because we might discover a technology that will help them improve yields or even disrupt them; so look for both strategic value and an investment return, much like a corporate VC. And when we mapped out our LP families, we realized that many had significant agriculture holdings.
Have you made any investments yet?
We are approaching the sector with a slightly different model to a traditional venture capital firm. When I was first exposed to the venture capital industry, one thing struck me about the process of firms investing in startups that I wasn’t used to. In my previous finance and banking roles, the guy with the money gets pitched, but in venture capital, it’s often the VCs pitching the startups to take their money. For startups, it’s all about getting the right people around the table to turn the business into a unicorn [worth $1 billion].
As an investor, you need to be crystal clear what value you bring to the table to make sure you’re getting into top tier companies. The barriers to entry for startups are much lower, though, and there’s a much wider band of quality.
So, as we thought about how to get to the top tier of startups and ensure we’re value-adding investors, we realized our strength was our LP base and our ability to help with cross-border expansion from the US to Asia.
But even then, after lots of research and getting to the term sheet stage with a couple of companies, we decided to pursue a different model and incubate companies before investing in them first.
What does this incubation involve?
I think it’s safe to say that some investors have been a bit disappointed with the returns and promise for how technology can impact agriculture in the short to medium term, bar, of course, the few big exits like Climate Corporation to Monsanto in 2013. That will change, but a way of de-risking it for us now is to bring the startups over to Asia to meet our agriculture families and see what partnerships we can arrange between them before we make any investment. It could be that they give us a percentage of their revenues in exchange for us distributing their products, for example. This is a nice way to “date” each other before investing.
We have engaged one agritech company with this approach so far. It’s an aerial imaging company. We brought them over to meet the families, and that gave us an order of magnitude more comfort in working with them; it was much more visceral than calling them. Here we have folks that are on our side, with a real business interest in this startup, and when you see their excitement, it’s very comforting. We haven’t invested yet as the company hasn’t had an open round, but it’s now quite likely for a future round.
Which areas of agritech are you looking at in particular?
Broadly speaking, you can split agritech into two main categories; biosciences and information-driven technologies. I think there are some great opportunities in biosciences, but in general VC returns in IT have outperformed those in biotech and clean tech, because in IT you have exponential curves where the power of computing is doubling every 18 months or so, and you can scale much faster if you’re leveraging on that technology. There are some interesting areas of integration between biotech and IT, but in the broad sense, it’s harder to find returns there.
Why did you go with an imaging company for your first collaboration and possible investment?
To optimize the farm and increase profit over the long term, you need to know what’s going on in your fields and there are a few ways to do that: put sensors into the soil or on the plant, or take imaging from above. All of these have their own place and agribusinesses can use them together. The ground sensors can take a very exact reading from a very specific point but can’t necessarily get an overall view of the field. A lot can happen in between sensors and plants, whereas imaging provides a broader view. The combination of the two things would be very powerful, so we might build a portfolio of complementary technologies.
We have a few other agritech companies in the pipeline at the moment and expect some more activity this year, but we haven’t decided anything yet.
I’ll never forget the first time I told my business partner Ramanan that I’d be fasting for the first 21 days of the year. He’s probably the most devout atheist I’ve ever met and I thought he’d be violently opposed to the idea because it would take away from my productivity at work.
RR: “So what does this fasting entail?”
JK: “Well everyone from our church fasts for the first 21 days of the year. You’re supposed to give up something that you place great value on. I used to wrestle and we cut weight before each match, so while I’m going to fast from food it’s not as huge a deal for me as it is for some others. As you know I’m also a total workaholic and that’s much harder for me to give up, so I have decided to also fast from work.”
[Long awkward silence]
JK: “I mean I’m not going to eat but I’ll be drinking liquids every other day. The other off days I’ll be drinking water so I'll be plenty hydrated. And with work I’ll just take half of each day off to go hang out with God, so I’ll still be online.“
RR: “Ok I’m very supportive of you taking time to recharge but I’m also really worried about your health. Also isn’t this the worst possible time to be fasting? The most important deal in the history of our firm just went live!”
JK: “Well in my way of viewing the world, which is admittedly different from yours, the best thing I can do to get this deal done is to fast. I know it’s counterintuitive, but as a way of recognizing God’s primacy in victory, the Israelites used to fast before entering into battle, just when they needed sustenance the most. So it’s actually kind of the best time for me to fast now.”
After explaining to Ramanan he fully supported me that year and every subsequent year, and we’ve hit more and more milestones after periods of fasting.
I don’t believe it’s a transactional thing where God says “if you fast, I’ll give you a deal”, but it’s more about getting my heart into the right place. Once that happens then a natural outflow of that is that all this crazy cosmic stuff goes down.
Most spiritual disciplines have a history of fasting that goes back thousands of years, but only in more modern times have the health benefits of fasting also been well documented. (Check out BBC’s documentary "Eat, Fast, Live Longer")
While I’m a fan of more modern day productivity systems like GTD, maybe it’s worth trying out fasting as a tool to live a more efficient and meaningful life. It’s worked wonders for me and billions of others throughout history.
When Beijing, some months back, announced new regulations to legalize app-based ride-hailing services in China, Uber Technologies Inc. hailed that move as a “historic starting point.”
Indeed, the removal of regulatory uncertainty seemed to set the stage for Uber for an expansion in China that could boost that San Francisco-based firm’s existing $62.5-billion valuation sky-high. No surprise, then, that Uber chief executive Travis Kalanick told theFinancial Times that China was “the number-one priority for Uber's global team."
The ride-sharing giant even announced new services aimed at differentiating its Chinese offering, including boat rides, hot air balloon rides and even a puppy-delivery day, where the company would bring a cute canine to offices for a 15-minute play date.
The new rules in China, announced earlier this summer and intended to take effect later in the year, seemed to set the stage for a David vs. Goliath battle between Uber and Didi Chuxing -- the Chinese transportation company, which dominates more than 80 percent of the market and has backing from Apple, plus a partnership with Uber's biggest U.S. rival, Lyft.
But, then, shockwaves erupted: Within a week of China's announcement, Uber merged its Chinese operations with Didi, bowing out of the battle altogether, in return for a 20 percent stake in the combined company. The deal valued the combined firm at $35 billion, according to Bloomberg, bringing together Didi’s $28 billion valuation with a $7 billion valuation for Uber China, which will continue to operate as a separate brand.
So, what were, and are, the lessons for other companies seeking to build businesses in China? Here are three.
1. Don’t go it alone.
Some have said Uber's deal is a bad one. These naysayers include Tech in Asia’s Charles Custer, who rightly pointed out that Uber could have invested $15 million for a 20 percent stake in Didi in 2013, back when that Chinese concern was valued at $60 million.
Instead, Uber plowed billions into building a failed Chinese operation. Still, it got a lot more right than most internet companies that have previously tried to enter China, such as Microsoft, Google and Facebook, which all tried to go it alone and failed. Instead, Uber learned from LinkedIn. LinkedIn was probably the first U.S. company to succeed in penetrating China, generating great success by ceding control and joining hands with a number of local strategic partners.
Those partners included Chinese internet giant Baidu, which gave LinkedIn access to its mapping and search services, and China Broadband Capital (which also invested in LinkedIn China). Since China is a much more relationship-driven market than the West's rule-of-law-based jurisdictions, finding good partners is absolutely essential.
2. Understand authority.
The U.S. and Chinese cultures differ in their attitude toward authority. The United States was founded by rebels breaking free from their rulers and creating a culture that values adventurers who push the limits of what is acceptable.
By contrast, China’s culture is based on Confucianism, which values filial piety and deference to authority. Government in China has a much stronger hand in the affairs of businesses and can help companies scale, or conversely, shut them down. Uber has a prototypical American culture, led by a chief executive with the self-styled image of a cowboy who shoots first and asks questions later. Uber’s modus operandi is gaining market dominance before dealing with regulatory issues.
Robert Salomon of NYU Stern School of Business has said that Uber should have asked authorities in China for permission, thereby showing respect and understanding of the cultural differences involved. The reality is even more complicated: Chinese companies have operated in gray zones with implicit approval from the Communist Party for years.
What matters is bringing advisors on board who can help navigate the closed-door sessions that characterize the Chinese Communist Party. Uber did this by partnering with numerous state-owned enterprises, including CITIC Securities Co Ltd.
3. Check your model.
Everyone knows that doing business in China is difficult for outsiders, but few entrepreneurs think about how their own business models might raise even more barriers. Tech companies focused on pure software, for example, can cross borders more easily than those like Uber that incorporate physical assets, such as cars, logistics and local payments, not to mention the regulatory headaches disrupted taxi drivers may cause.
Businesses like Uber can still win in overseas markets, but they require incredible commitment. As one example, Amazon deals with physical assets, logistics, local payments and regulatory issues but is quickly gaining ground in India. However, China probably presents an order of magnitude more difficult to penetrate than India's; and Amazon is an order of magnitude larger than Uber. As Anthony Tan, chief exec of Southeast Asian ride-sharing service Grab, told CNBC of ride-hailing apps, "There is a clear advantage of being local."
The story is far from over. Uber’s problems in Asia may not end with its deal with Didi. News that Grab is raising $600 million from Didi and other investors suggests that while the anti-Uber alliance is still intact, we can expect more consolidation in the space.
Interestingly, Uber’s Chinese merger is actually evocative of the sale, in 2005, of Yahoo! Inc.’s business in China to Alibaba, along with its $1 billion investment there. While the deal was initially seen as a failure, it turned out to be one of the best assets Yahoo! owns.
Similarly, Uber will save the $1 billion it was annually plowing into building its China business, so it can now shore up its finances for a potential IPO. Essentially, Uber can now effectively ride Didi’s coattails to a growing valuation for its one-fifth ownership of a company that looks set to dominate ride-sharing in China for years to come.
Today after landing at London Heathrow Airport and sorting out wheelchair assistance for my pregnant wife, I found myself chatting with our buggy driver, a lovely young lady who migrated from Punjab India to the UK 7 years ago.
The conversation naturally gravitated to the Brexit decision, and when I asked her if she had voted she turned and said with a smile, “leave… definitely leave”.
“I know it will be difficult for a couple years, but I just wanted change. We work so hard to make an honest living, and we can’t even afford to get ourselves a decent home. I hope after we exit the EU housing prices will come down and we’ll get more quality jobs as people leave.”
I didn’t sense an ounce of xenophobia in her, and I found myself thinking that if I were in her shoes I’d probably feel the same way. But what troubles me is that this could be the beginning of a global phenomenon. Note supporters of a certain presidential candidate who promises to build a wall and kick Muslims out of America.
If the wildly volatile equity and fx market reactions to the Brexit result are any indication, it seems that isolation and uncertainty will likely not bring the desired effect of a stronger economy and more jobs. The fact that countries that trade with each other don’t go to war has been frequently referenced. But beyond the spheres of macroeconomics and world peace, the impact of a structural shift to isolation would make perhaps an even more pronounced impact in the sphere of technology and entrepreneurship. To understand why let’s take a look at what has happened over the past few decades.
With the paving of roads, proliferation of free trade agreements and increased flight frequencies, companies who have dealt primarily with physical goods and services (what we venture capitalists call the realm of atoms) have come to experience more unified markets that have brought cheaper products to consumers and cheaper costs to businesses. But if tighter supply chains rolled across national borders like barrels of molasses, a flood of information crossed those same boundaries to encompass every cavity with just a crack of an opening. Companies that were engaged in selling digital products experienced much more unified markets much faster simply because bits travel more seamlessly than atoms.
A list of the world’s top ten retailers shows a group of players with relatively balanced market capitalizations across Europe and the United States (with some from Asia certainly a bit further down the list). A freer movement of atoms has certainly helped them to integrate globally, but compare that to Google’s near categorical dominance across the world, which illustrates the winner take all dynamic of seamless digital markets.
(A reversion to disparate markets would have a much more pronounced impact on information based businesses, the dominant domain of innovation and entrepreneurship)
Unified markets lead to more innovation because successful startups can achieve escape velocity faster and reach much larger scale than those targeting disparate markets. This leads to more venture capital for startups and more entrepreneurs who are motivated by outsized financial returns and the chance to make a global impact. If every country had a national intranet like North Korea we’d have fewer venture capitalists, fewer entrepreneurs, and many more sub-par search engines targeting each country. Globalization and innovation are two sides of the same coin.
Also, while the displacement and disruption do hurt in the short-term, history has shown that in the long-term society does benefit from globalization and innovation. Gutenberg’s printing press dealt a blow to bible copying monks. They were pained for a while but eventually they made more beer and lived a good life. More importantly, bibles and books in general, which were reserved for the elite became available to the masses. Though it may not feel like it right away the eventual beneficiary of globalization and innovation is the average citizen.
Unfortunately our buggy ride did not last long enough to articulate this to our driver, but somehow we must address the growing urge towards isolation and create as efficient, as peaceful and as connected a world as possible for generations to come.