High returns are always the ultimate goal of Daniel Yang, Managing Partner of Softbank Asia Infrastructure Fund (SAIF) Partners who is responsible for investment in the Greater China region. Whether investing $20 million in large projects or $5 million in small projects, Yang always aims high.
Yang is also General Manager of the SAIF Growth Fund and the director of over 10 companies including World 2, Mobi Antenna Technologies, Bokee, MainOne, Baitai Media, Taihe Media and Shunchi (China) Real Estate Network Ltd.
"The ultimate goal of venture capital is harvesting profit," Yang said. "The money invested must go to people who are capable and trustworthy. That is why I prefer investing in fast-growing small businesses valued at a few million dollars such as Google, MainOne and 58.com. The prerequisite for investing in these types of businesses is that the final return must have a positive impact on our overall return.
"However, I personally prefer large projects with investments of over $20 million, because you can harvest great profits as these projects can easily double or triple in value. On the contrary, if you invest a few million dollars in a small project, a five-fold increase, while being an excellent result, would be of little benefit to us, a fund with $1 billion in capital. This is why I always favor relatively large projects."
SAIF completed its third phase financing of $1.1 billion in late March and has just commenced a new round of investments.
The next Shanda
"Since its inception in 2001, SAIF has completed its first and second phases of financing and investment and has successfully exited from a number of its investments with high returns," said Yang.
It is widely known that SAIF raised $400 million in its first phase, after investing in 28 enterprises over four years and exiting from four. Its best result was with Shanda Interactive Entertainment Ltd., where they realized a return of $550 million over two years with an initial investment of just $40 million-a return rate of 14:1. SAIF raised $640 million in its second phase.
Some investment projects that Yang has been personally involved with, such as Shunchi (China), MainOne and Taihe Media Investment Co. Ltd. have become popular case studies within the industry.
"In the first and second phases of investment, although I always prefer a strict investment focus to avoid being scattered, we still invested in a number of small and medium-sized businesses due to some objective factors," Yang said. We have reaped a decent harvest from these projects in the past. Among others, MainOne and 58.com were both very successful."
Yang still has fresh memories of that particular investment experience. In July 2005, SAIF invested $10 million in MainOne, which at the time was an unknown small business. After two-to-three months of studying many aspects of MainOne, including the team and the operational model, Yang thought that MainOne's founder, Zhang Jiguang, was a very experienced businessman whose "one-on-one" direct sales model directly tapped into a large customer-base, which is in line with SAIF's investment strategy.
Moreover, the most important thing for small and medium-sized businesses is that IT services have broad development prospects and have huge market demand. In this case, the negotiation went smoothly and capital of $10 million was quickly transferred to the MainOne account. Nowadays, the number of employees at MainOne is four-to-five times that of the past. Turnover has reached 100 million yuan, making it the industry leader.
"I am very happy with the high returns generated from this small investment," Yang said. "However, investing in 58.com was a better match to my personal investment concept." In February 2006, SAIF invested $1 million in 58.com, a domestic classified website. The website provides its users in each city with free services such as trading, real estate rental, job seeking and recruitment. Its function is similar to the classified in newspapers and Yellow Pages, and its profit comes from business users who publicize commercial information on the website. It is absolutely free to individual users.
This was a great investment. First, as users provide the information, only a skeleton staff is needed for management, so labor cost is very low. Secondly, after 58.com commenced its service, there were over 6,000 entries each day on the Beijing site alone. The market capacity and demand is evidently huge. Therefore, the real value that 58.com generates for investors is hard to quantify.
This fact was expected by Yang. At present, more than 100 medium-sized and large cities have established their own 58.com sites to provide hundreds of classified listings for local people. Some people predict that 58.com will be the next "Shanda" in terms of the success of its returns.
High-yield single investments
To SAIF, investments under $5 million do not match its style. They are too insignificant.
"With the exception of websites, SAIF rarely invests in projects involving only a few million dollars," said Yang. In fact, over the past six years, SAIF has invested $1 billion in relatively well-developed companies in IT, Internet and real estate. In addition, most of the individual investments are over $20 million. Companies such as Shanda, Shunchi (China) and Joy Media already had well developed profitability models and stable cash flows when they received their investments. However, the lack of significant capital operations after their start-up phase resulted in stagnancy. After the input of tens of millions of dollars, these companies grew quickly to become the leaders of their respective industries.
With regard to these successes, Yang is proud. "These completely reflect SAIF's investment strategy and better match my highly-focused investment style," he said.