Overseas expansion is not only important for startups, but also for VCs. CyberAgent Ventures is a venture capital firm that does early-stage investments focusing on consumer internet startups in China, South Korea, and Southeast Asia, among which six companies successfully completed IPO.

Japan-based CyberAgent Ventures had zero investment outside Japan when Nobuaki Kitagawa joined in 2006, and now with Nobuaki in charge of China, South East Asia, and South Korea markets, CyberAgent has made 150 investments with setting up 8 offices throughout Asia, including Jakarta Indonesia, Ho Chi Minh Vietnam and Bangkok Thailand run by head of each country operation.

CyberAgent Ventures was founded in 2006 and is run by two managing partners Nobuaki Kitagawa and Hirofumi Kondo in Tokyo. All of their funds are in USD with separate funds for China, South East Asia, and South Korea. With about 150 million USD assets under management, 50% of the fund is invested in Japan and about 30% is invested in China, and less than 20% is invested in South East Asia and South Korea.

Some of the standout companies of CyberAgent’s portfolio are:

  • invested in Tudou in 2007. Founded in 2005, video sharing website Tudou merged with Youku in 2012.
  • invested in Kakao’s series A in 2011. South Korea-based Kakao has instant messaging app KakaoTalk and merged with Daum in May 2014. 
  • invested series A in Tokopedia, Indonesian e-commerce startup in 2011. Tokopedia was invested by SoftBank in 2014 and got $1.1 billion investment from Alibaba this month.

We sat with Nobuaki Kitagawa Managing Director of CyberAgent Ventures to ask the future trend of startups and get some insights from his previous investments.

Nobuaki Kitagawa Managing Director, CEO of CyberAgent Ventures (Image Credit: CyberAgent Ventures)

Nobuaki Kitagawa Managing Director of CyberAgent Ventures (Image Credit: CyberAgent Ventures)

Are Chinese startups open to receiving USD investment from overseas VC?

Most of the startups are looking for a going global eventually. That’s why they take USD investment. We have various networks across Asia, and that’s our unique point as an investor. If they want to expand to other Asian countries, this network will be useful for them.

For Chinese startups in the market, receiving RMB investment is much easier. It depends on their focus: stay in the domestic market or expand outside of China. Chinese companies have a unique structure for going IPO in the US market. They either eventually exchange USD investment into RMB in China or they keep USD investment in preparation for outside use.

What are some of the areas in tech that your funds are focusing on right now?

Almost all of our investment is in the consumer internet sector, and we will keep this strategy. In China, we are focusing on IoT and hardware related companies. The key is not only the hardware but the data behind the hardware. More data becomes the real body of the service and can make meaningful service applications. If you manufacture an item, the cost is the key. Manufacturing is the biggest advantage of China. That’s why hardware and IoT services China has the most advantage.

Rental economy service, say the next of Ofo, Mobike should come out, and it will have big potential. If there’s any rental service hardware that collects the data, that startup should have very interesting opportunities ahead.

Can you share your failure stories?

We have a lot. We invested in about 150 startups so far, among them successful ones are only 25~30 startups (20%) and the rest of them all failed. We want to have more successful investment, but we need to take a risk.

In terms of sector, any VC can determine what’s going to come in the next five years: IoT, VR, AI, and cryptocurrency. It’s not hard to determine. What’s hard to determine is to find the best player in the sector. Still, there is no clear way to make the right decision in the category. Judging a company, management team, and people is not based on a mathematical formula. You can’t have 100% correct answers. Every year, we invest about 5-6 companies in overseas and we know still, 3 or 4 companies will fail.

After the “capital winter” in China, has investment behavior changed in your firm?

Compared with the US or Southeast Asia, I don’t think China suffered from a capital winter. Because still there are active VC investors with more and more angel investors in the market. In terms of early-stage investments, Alibaba and Tencent are aggressive in investing in startups.

How competitive is the environment between VCs in China right now?

China has the highest competition with the biggest number of VCs and startups. It’s the highest return and highest risk. That’s why we are doing it here in China because we cannot expect a return on investment in other parts of the world that is as big as China. It’s good dynamic and strategy to have business portfolio comprising of China and Southeast Asia, that way we take a big risk and have a big return in China and take a middle risk and have a middle return in Southeast Asia.

Current hi-­tech trends in mind, what do you think will be the biggest winner within five years?

The biggest winner within five years will be IoT in our perspective. To talk about other countries, Japan is focused in fintech right now and it has the biggest opportunity in the market. Japan’s banking industry is old and conservative, and there will be innovation in Japan’s finance market. Southeast Asia is five or ten years ago of China, we are still looking at sectors like e-commerce, O2O, content, games, online payment.