The coronavirus outbreak has reinforced how crucial technology is to our lives, and thus made it even more attractive to investors. But numerous cautionary tales show that it is no simple task picking the right deals in this sector, and it is getting even harder given ever-fiercer competition from the likes of sovereign wealth funds and other big players in recent years.
So it’s perhaps no surprise that Asian family offices – which have long been keen tech investors – may be becoming less ‘gung-ho’ and more careful in their approach to the sector.
“Family offices would like to have visibility into the business model, revenue and profitability path, as well as the exit," Eric Poon, senior executive vice chairman of the Association of Family Offices in Asia (AFO), told AsianInvestor. "Gone are the days when they just bet on companies that are losing money and bleeding all the time."
In particular, he said family offices would be more selective, with their focus shifting to tech firms whose businesses relate more to the practical aspects of people’s everyday lives than to intangible assets such as cryptocurrency.
This appears to reflect a wider, pandemic-driven change in approach, whereby some wealthy family groups have recognised they can have a part to play in helping support and rebuild local businesses.
“Tech is here to stay, so I'd think the ecosystem, from family offices providing the funding to private companies, all the way to the research and development and the application of these businesses in our daily lives, will be important,” Poon said.
Covid-19 has accelerated existing trends from rising automation to telemedicine, noted Champ Suthipongchai, chief investment officer of San Francisco-based fund manager Creative Ventures.
All this has contributed to a more cautious approach towards private market investments in technology, Poon said. Family offices in Asia are looking towards assets with a relatively liquid profile, he added, such as co-investment deals and late-stage, pre-IPO companies, which present better prospects for potential exits. They are doing so, he said, because there are more "black swans" now than in the past.
WeWork’s fall from grace last year epitomised some of the pitfalls, as the provider of co-working space retreated from its listing plans and had its valuation significantly written down. The disappointing IPO of ride-sharing app Uber was another warning flag.
Even the most sophisticated players are not immune; Japanese tech investment giant SoftBank was among the many that fell foul of both.
Indeed, a Hong Kong-based family office executive told AsianInvestor in May last year that wealthy individuals and families often invested into tech at least partly “for the sake of showing off – it’s a talking point at parties”.
However, they are now more focused on targets with solid and stable performance as well as growth potential in their home markets, said AFO's chairwoman Eva Law.
PATIENT BUT INEXPERIENCED
Certainly the Asian FO segment has the money to spend – with high cash balances amid the pandemic, according to experts – but the time to be patient.
The fact remains, however, that many family offices lack experience in making private investments in new economy companies, said Poon. Early-stage companies typically require more nurturing while late-stage companies need help from the capital market for exits, he explained.
Others agree that the expertise has often been lacking.
KO Chia, a director at Hong Kong-based multi-family office Grace Financial, told AsianInvestor last year: “Most [family offices] are not set up to do the deep dive in due diligence, market sizing, assess technology risks, commercialisation challenges, managing team dynamics and skills to monitor the portfolio company after the investment. All these are really hard work – I know, since I have done it before.”
There are signs, at least, that Asia’s family offices are getting to grips with the issues.
Joe Marsh contributed to this story.