Asia Catches .Com Fever

By Eric Ellis/Singapore

Remember the '80s? Japan was ascendant, America was in disarray, emerging markets were wallowing in the Decade of Debt. Asia's Century was said to have begun. Then came the collapse of Japan's bubble, followed by the currency crunch along the entire Pacific Rim. While Asia, stunned, watched from a distance, the Internet-driven New Economy mushroomed in the West. For a while, it seemed as if the long-predicted Pacific Century might be stillborn--or stolen altogether.

No longer. Asia is producing its own Net nerds, who are bringing new businesses and technologies to the region and, along the way, getting rich beyond their wildest dreams. If all works out, geeky pioneers in Japan, China, South Korea, India, Singapore and Taiwan may reinvent Asia's future--just in time. Regional Internet analysts estimate that there will be 300 to 400 Net-related IPOs in Asia this year, half in Japan and India.

Fortunes are being made and will be lost in the market gyrations that are starting to dizzy the region. But risk is what Asia has always excelled at. "The Pacific Century has not been lost," says Singaporean Netpreneur Wong Toon King, "only delayed a bit." Some of those who are making it happen:

the hot start-up[dot]com HELLOASIA.COM AIMS TO BE BOTH "STICKY" AND PROFITABLE

Never mind computers, there weren't many telephones in Sandor Hau's hometown when he was a boy. Hau grew up in Pennsylvania's Lancaster County, home to the austere Amish farming community. "Mine isn't a classic Silicon Valley pedigree," jokes Hau, 28, who speaks Korean, English, Japanese and the archaic Amish-German dialect. "I think my family were the only Koreans in the county."

Hau long ago left his horse-and-buggy home for Seoul, where he holds the reins of one of Asia's hottest Internet start-ups. Last October, he and partners Hans Tung of Taiwan and Chih Cheung of New York launched Helloasia.com an e-commerce and community portal with $20 million of venture capital. Helloasia.com is a kind of frequent-flyer program for Asia's Net surfers. The more you spend at its e-commerce site on items like CDs, travel tickets and computers, the more points you receive toward free gifts. The idea is to promote "stickiness," the ability to keep users hanging around your site. Stickiness builds online communities, which attract advertisers. The trilingual (Korean, Chinese, English) site maintains offices in Seoul, Hong Kong, Taipei, Singapore and Silicon Valley. Hau hopes Helloasia.com will be profitable by October. After that, the partners will think about an IPO, probably in the U.S.

Americans have been impressed. Among those who have backed the three former investment bankers are blue-chip names like Intel and the Times-Mirror group. Yahoo is also looking at a points system to reward online loyalty to its Asian sites, and Singapore's big Net service provider, Pacific Internet, has a similar program.

The current emphasis at Helloasia.com is on fulfilling its promise. More than half its venture-capital funding is aimed at promotion and brand-building. "We expect massive competition," says Tung. But Helloasia.com has the jump on its rivals, and being first matters.

the angel [dot]com INVESTOR JIM MELLON IS LOOKING FOR A FEW GOOD ASIAN VENTURES

Jim Mellon was in the skies above Florida when enlightenment struck. The Hong Kong fund manager was taking lessons at a Vero Beach flying academy, on a break after two trying years in Hong Kong. Regent Pacific, an old-economy investment group that Mellon co-founded, had lost $50 million in the Asian financial crisis and Russia's collapse. Soaring above the coast at the controls of a borrowed Piper Cherokee, the 41-year-old Briton came to a jarring realization: "The sleekest planes parked in the aerodrome were owned by people at least 10 years younger than me. And these people had the best cars and the best-looking girlfriends."

"These people" were Internet and technology entrepreneurs. Intrigued, Mellon started chatting with them in the flying- school cafe. Over triple-shot lattes, they told him about the "angels"--wealthy investors who finance technology businesses (more often just ideas) that conventional banks or venture-capital firms wouldn't consider backing--who funded their start-up companies. "I vowed to myself that I would get a piece of this," Mellon recalls.

A year later, he is on the brink of big success. He and his fund have invested $10 million in 10 start-up companies in Hong Kong, Seoul and London. Four of them--including Britain's Bigsave.com an e-commerce emporium--are preparing flotations on the London Stock Exchange or NASDAQ.

Mellon tends to locate his projects the old-fashioned way, through his 20-year-old list of corporate contacts. But if all goes well, he expects to make more money in just one year than in the previous 20 he spent in Asia.

the venture capitalist [dot]com ASIATECH TAKES HIGH-STAKES FLYERS ON REGIONAL INTERNET FIRMS

In 1985, Hanson Cheah was a sophomore at M.I.T., studying robotics and dabbling in Project Athena, a pioneering electronic network. The Malaysian native met a freshman from Singapore, Wong Toon King, and invited him to join Phi Beta Epsilon fraternity. Wong declined. He was studying on a government scholarship and was 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 CEO of the Hong Kong venture-capital group AsiaTech Ventures.

Instead, Wong became something much more important--a computer geek, who joined Singapore's National Computer Board. Cheah returned to Malaysia and took a job at Solectron, a technology assembler in Penang. Then came the Internet explosion, and the two M.I.T. graduates, who had remained friends, saw the light. Says Cheah: "We figured this was something we were born to do."

Cheah raised $18.5 million from family, friends and associates, then 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, a pioneering Web-design company, which in turn created Advanced Manufacturing Online (AMO), an online component-exchange system that matches users and suppliers. AMO has sales of nearly $5 million. When Cheah learned what his former 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 inspired. Investment firms Morgan Stanley, Goldman Sachs and others sank $20 million into AMO last July, and Hong Kong tycoon Richard Li paid $27 million for 25% of SilkRoute, whose main asset is 38% of AMO. No matter that neither company has made a profit. Few Net companies do, at least yet. But Cheah, 34, has no intention of selling out. "I'm waiting for a much bigger payday," he says.

Successful regional IPO floats would confirm AsiaTech's reputation as one of the region's premier venture-capital firms. Cheah and his 20 fellow dealmakers have spent $75 million--half of their total fund--on Internet companies in Asia and the U.S. In retrospect, the Asian financial crisis appears to have actually helped the business. "Everyone else was too distracted fixing problems to think about venture capital," Cheah says. There is a shortage of good prospects, however. Cheah and his backers reckon that they discard about 95% of the 300 or so business plans they see in a year. Nonetheless, Cheah predicts, "The number of Asian Internet IPOs in the region and on NASDAQ will at least quadruple over the next year."

the incubator [dot]com ROBERT KENNY AND JONATHAN CHENG OFFER MONEY AND SMARTS

Step into Robert Kenny's office in Hong Kong's gritty Wanchai district and you may find him idly flipping a Frisbee. It's his way of making money on the Internet. Many of his clients are barely out of their teens, and catching Frisbees while talking deals is as natural to many of them as wearing chinos in the office. "I'll do whatever it takes," says Kenny, a 32-year-old Briton whose company, Incubasia, nurtures young Internet entrepreneurs in a kind of upbeat corporate hatchery. "If playing with a Frisbee inspires our clients, then a Frisbee it is."

Kenny's firm, which he co-founded with Jonathan Cheng, is known as an incubator and is critical to the development of Internet businesses. Think of such companies as corporate foster parents whose experts nurture Netrepreneurs so they can make it on their own. Strong on tech but sloppy on marketing? Probe the incubator's contact book. Big on vision but clueless on execution? An incubator can find just the right manager.

The Internet's most successful and best-known incubators tend to be American. CMGI Inc. of Andover, Mass., Guy Kawasaki's Garage.com in Palo Alto, Calif., and Bill Gross's Idealab.com in Pasadena, Calif., have fostered more than 150 Net start-ups in all, hitting pay dirt when their young charges go public. CMGI, which has partnered in Asia with Hong Kong businessman Richard Li's Pacific Century group, has been called the Berkshire Hathaway of the Internet. CMGI currently boasts a market capitalization of about $26 billion.

Kenny, who studied management and mathematics at Cambridge University, knows Internet start-ups intimately. His Taiwanese-American wife is co-founder and CEO of DotLove.com whose website dispenses sex and love-life advice to lovelorn Chinese. Kenny co-founded his own company last September with Cheng, 29, a well-connected Hong Kong financier. Last December, Brett Rierson, a former vice president at A.T. Kearney Executive Search's global technology practice in London and Hong Kong, became the third partner. One start-up, a classified-advertising website, has graduated from Incubasia and four others are in the hatchery.

Kenny says Incubasia is planning to nurture 15 or so new firms over the next year and a half. "We are looking for start-ups that take a global view of the markets," he says, "whatever sector it is." That may seem like an ambitious agenda, but in a typical week Cheng and Kenny vet roughly half a dozen business ideas. Clients are welcome to move into Incubasia's office and help themselves to logistical support (including Frisbees). The founders also provide expertise and up to $500,000 in financial assistance, plus one of the Internet's most treasured commodities--hype. "Our job is partly to be the evangelist for start-ups," says Kenny. "We have to get the message out." In return, Incubasia gets an equity stake in each company, usually between 33% and 50%. Armed with business and technological know-how, clients are expected to leave the nest and set up on their own within a year.

Not every start-up needs so much hand holding. But Kenny and Cheng argue that their services are essential. "We could make the difference between whether a start-up fails or succeeds," says Kenny. To help cope with the long hours, Cheng had a baby room built in the office for his young child. Now, that's taking incubation very seriously.

the hot and cold [dot]com TIMELESS SOFTWARE WENT PUBLIC, FOR BETTER AND SOMETIMES FOR WORSE

Danny Cheng didn't graduate from an elite overseas university or acquire information-technology training--and a PalmPilot full of contacts--in Silicon Valley. Instead, Cheng, who is 33, fits the mold of an old-fashioned Asian entrepreneur: he worked his way up from humble Hong Kong beginnings. "My family was poor," says Cheng. "At the beginning of each month, we had to worry about how to get to the end."

Today, as COO of Timeless Software, a software-solutions firm that started out curing software and Internet-related headaches for the local government and utility companies, Cheng is well past that. Established in 1996, Timeless went public last November as one of two initial listings on Hong Kong's Growth Enterprise Market, the territory's wannabe answer to NASDAQ.

In 1996 Cheng set out on his own, co-founding Timeless. He and CEO K.K. Cheng developed the firm with $10 million gleaned from an anonymous investor and the company's 15-member management team, many of whom Cheng had known from nearly two decades in the technology industry. By 1997, Timeless had acquired two local systems-integration companies, and by 1998 it had opened its first China branch in Guangzhou and set up a joint venture in the special economic zone of Zhuhai.

It took 2 1/2 months to prepare the financial and legal requirements for the Growth Enterprise Market listing. Cheng and his team had envisioned a grander debut. They wanted to be on NASDAQ from the outset. But a plea from GEM's chairman, they say, persuaded them to list locally. Timeless had secured $13 million in capital from Taipei-based angel/investor Crimson Asia Capita; the GEM listing raised an additional $58 million.

Then things got stormy. In a swift year-end deal, Cheung Kong Holdings, billionaire Li's flagship, paid an estimated $5 million for a 2% stake in Timeless. In turn, Timeless agreed to invest $23 million in new offices in the Center, a top-drawer Cheung Kong development. In the old economy, a deal with one of Asia's richest men would have marked one's arrival among the local business elite. But to many investors, Timeless suddenly looked less like a go-go technology firm than an old-fashioned real estate play.

"Is it a software-systems integrator or a property investor?" asks Internet analyst David Webb, publisher of Webb-site.com He says the office-space purchase deal represents 40% of the IPO proceeds and violates Timeless' prospectus, which pledges to allocate funds raised to working capital. Cheng defends the deal. Still, the market needs convincing. On the first day of listing, Timeless stock peaked at 99[cents]. But by the end of last month, it was down to 71[cents].

Cheng is projecting a $2.6 million profit for the fiscal year ending March 31, after cumulative losses of $7.7 million racked up during Timeless' first three years. Listing on NASDAQ has not been ruled out. To do that, however, Cheng will have to turn the heads of U.S. investors with flashier results--not just a prestigious office address.

the sellout [dot] com AN INDIAN PORTAL TURNS INTO A QUICK CONVERSION TO CASH

Rajesh Jain made one of India's biggest business deals of 1999--and ran. Before the score that netted him $115 million, Jain, 32, operated a website known as IndiaWorld, which posted local news and sports scores, primarily for Indians living overseas. His 20 staff members were squeezed into a 970-sq-ft. warren in downtown Bombay. Profits were minimal. But last fall Jain hit a cosmic payday when he sold his portal company, IndiaWorld Communications, to Satyam Infoway, an Indian Internet service provider listed on NASDAQ. The $115 million deal--one of the biggest Internet transactions involving two Asian companies--gave Jain instant celebrity, a whopping bank account and a desire to leave the Internet rat race, at least for a while, to enjoy his winnings.

Jain taught Asia what Silicon Valley has known for a long time: though going public is a fabulous way to cash in on the Internet, selling out to someone else can be a sure-fire moneymaker too. Satyam Infoway wanted content popular with overseas Indians to complement its own domestically oriented portal. IndiaWorld was pulling most of its 13 million monthly page views from outside the country. Jain got an unusual windfall because Satyam Infoway is paying the entire purchase price in cash, not in stock, which is more typical in such deals. His initial investment was $50,000.

It was second-time lucky for Jain, who trained to be an engineer at Columbia University. In 1995, Ravi Database, the software-services company he founded in 1992, went broke. Chastened, Jain embarked on a soul-searching sabbatical in the U.S. What he found was inspiration. Jain noticed that thousands of Indian expatriates had little access to news from home. He figured the Internet was the ideal delivery system.

The shy, bespectacled Jain set up IndiaWorld the same year with money saved from his job. "I wrote my business plan on Post-it notes," he jokes. The site was built almost entirely using public domain software, such as the free Linux platform, and it was maintained on widely available Apache servers. "In our entire five years, we bought only three software packages--Windows, Office and Photoshop," he boasts.

The first two years were spent persuading advertisers to take a flyer. Typically, IndiaWorld managed to grow handily in terms of hits while its profit last year was an imperceptible $58,000. But IndiaWorld earned buzz, and Jain suddenly found himself courted by angel investors, foreign venture capitalists and banks eager to lend. In the end, he decided to get out of the game entirely by selling to Satyam Infoway, one of the largest Internet service providers in India, which doesn't allow foreign competition in the field. "We already have a substantial audience in India," says chief executive R. Ramaraj, "and with IndiaWorld, we have acquired an India-interest audience globally."

Satyam Infoway now claims 30 million page views a month, and its share price has doubled since the IndiaWorld purchase. The deal helped kick off an Internet frenzy among Indian entrepreneurs and financiers, which has been fanned by New Delhi's public commitment to develop India's information-technology sector. Dotcoms are sprouting across the country, spurred additionally by the entry of big international investment funds. Some Indian-born Silicon Valley programmers and engineers are finally coming home to put their skills to use. But Jain has been happy just to put his money in the bank.

--With reporting by Wendy Kan/Hong Kong and Saritha Rai/Bangalore

With reporting by Wendy Kan/Hong Kong and Saritha Rai/Bangalore