For western startups looking to enter Asia and Asian startups expanding globally, more funding has become available as investors are increasingly looking to export local tech solutions to overseas markets.
Globally based venture capital firm White Star Capital has set up a new office in Hong Kong this month to capture entrepreneurs in the budding region as well as help its portfolio companies go to Asia. Founded by Eric Martineau-Fortin, who spent years conducting mergers and acquisitions at Merrill Lynch, and Jean-Francois Marcoux, who sold his gaming startup Ludia to FermantleMedia, White Star has over the last decade backed a spectrum of early-stage companies across several continents.
Currently investing with eight partners spread across seven cities, White Star’s portfolio spans from New York-based healthy meal startup Freshly, rewards app Drop out of Toronto, on-demand photo platform Meero from Paris and dog food startup Butternut Box in London.
Beginning in 2017, Martineau-Fortin and his partners began looking eastward. They decided to initially exclude China as the market was already crowded with no shortage of funding available, leading to much larger investment round sizes compared to the U.S. and Europe as well as notoriously high valuations.
The investor also believed “cultural differences in both consumer and enterprise behavior” require different regional strategies. Whilst certain Asian companies specializing in artificial intelligence, fintech, enterprise software and micro-mobility share some commonalities with Western counterparts, others such as e-commerce businesses remain, still, quite distinct in Asia.
“Having said this, there is also a number of fabulously interesting ecosystems and countries outside of Hong Kong and China that are sometimes forgotten by North American and European-based investors, such as Japan, Korea, Singapore and Taipei. Those are also very advanced regions with great schools, great engineers having certainly easy access to capital but not always the ability to connect and sell their product, services and technologies to other places than the U.S. West Coast,” said Martineau-Fortin in a phone interview with TechCrunch.
Upon that realization, White Star started to build connections with big corporations and investors in Japan and South Korea, which in 2018 led to opening its first Asian location in Tokyo headed by former World Economic Forum executive Shun Nagao.
The proven record in Japan eventually inspired the investment firm to launch in Hong Kong, adding to a list of offices in New York, London, Paris, Berlin and Stockholm. Joe Wei, a former investment banker at Deutsche Bank for more than 10 years before becoming a fintech entrepreneur, is taking the lead for White Star in Hong Kong.
The firm’s strategy is to allocate 10-15% of each fund outside of North America and Europe with the bulk of it reserved for Asia-based startups. It’s currently 75-80% through its $180 million second fund closed in 2018, and it’s looking to raise a bigger fund leading up to 2020.
Why Hong Kong
The founding partner believes Hong Kong offers great exposure to mainland China with easy access to fast-growing places as Shenzhen — which houses some of the world’s biggest tech firms such as Tencent, Huawei and DJI — while “offering a similar business environment” to the one it has experienced in New York and London.
“Not only do you have a lot of capital in Hong Kong, but you have also a bunch of new innovative ideas that are coming out of Shenzhen and other fast-growing cities in China and Southeast Asia. We think a number of these ideas could certainly be of interest for North America and Europe,” noted Martineau-Fortin.
Irrespective of where companies are based, White Star always selects them based on a set of criteria, which are: “Can we help our companies expand outside their own base? Can we offer them [help to] recruit talent from abroad? Can we offer our venture connection with certain companies that can be relevant to either the tech, distribution or manufacturing side?”
Trade tensions between the U.S. and China are not to be overlooked for anyone investing in the Greater China region. Martineau-Fortin pointed out while the trade war is negative for everyone, the impact on White Star is likely limited as its investment platform offer “unique neutrality to these challenges.”
“Perhaps the trade conflicts will have an impact on the relationship certain of our U.S. companies have with other jurisdictions, but I certainly hope it could be the opportunity for other of our portfolio companies in Europe and Canada to strengthen the strong bond which exists between Asia and China, and these regions where we have a strong presence”.