Q&A with Dr. Finian Tan
Chairman and Founder of Vickers Venture Partners.
Family Office Insights sits down with Dr. Finian Tan, Chairman and Founder of Vickers Venture Partners, to discuss the fundraising of Vicker’s fifth fund. Three out of four funds are currently in the top quartile when compared to Preqin’s database and Vickers Fund IV is currently the best performing fund of its vintage (2012).
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Tell us about your background and your company, Vickers Venture Partners.
In the early part of my career, I spent three years at Goldman Sachs as Vice President at J.Aron and Co (Singapore) and was eventually the Regional Director and Head of J.Aron and Co. (Singapore) in charge of the Asia-Pacific Region. It didn’t make much sense for me to be running the Asia-Pacific division out of the NY and London offices, so I asked to go back to my home country, Singapore. Upon returning to Singapore, in early 1997, I was asked to serve as Deputy Secretary of the Ministry of Trade and Industry for the Singapore Government to help turn the country into the ‘Silicon Valley of Asia,’ leading in innovation, creativity, and entrepreneurship.
In 2000, I joined as the founding Partner and Managing Director of the Silicon Valley Venture Capital Firm, Draper Fisher Jurvetson ePlanet in Asia. During my time there, I spearheaded the investment into Baidu, a small start-up with no revenue and just one customer for its search engine at the time. I invested US $7.5 million for 25% of the company; Baidu is now worth US $62 billion and considered as the best performing IPO on Nasdaq today. This was the 3rd best IRR in the Asian portfolio. If the portfolio was a fund, it would have been the best performing fund in the world for its vintage. Because of this, I felt encouraged to continue doing this on my own, using my own strategy that I had started developing – and that was working. In 2005, I founded Vickers Venture Partners together with 4 partners, an international venture capital company focused on early stage investments with a presence in Southeast Asia/India, China, and the US, which we believe – and are supported by the innovation and population data – are the biggest markets now and in the future. Some of my investments include Baidu, Focus Media, Kongzhong Corp, Cambridge Real Estate Investment Trust, Sunfun Info Co., Asian Food Channel, UUCUN, TWG Tea, RTG Asia, and JJE, as well as Samumed. Prior to starting Vickers, I was the Managing Director and head of the Credit Suisse First Boston group of banks in Singapore and Malaysia.
At Vickers Venture Partners, we use a proven investment process that has led to a 2/3 success rate for early stage investments, approximately 50% of successful transactions have generated at least a 5x MOIC or 25% IRR. Three of our four investment funds have been in the top quartile. Over the last 11 years we have invested $364 million (including co-investments) in 34 companies, with a current total value of $2.2 billion (net multiple of 5.4x). We are recognized across markets for such things as the Fastest Growing Portfolio Company from 2012-2013 (TWG Tea), the Best Performing VC Backed Company (Asian Food Channel), and the Best Exit Category A (Cambridge REIM).
Who is your target audience? What do you like to invest in?
Our portfolio covers life sciences, technology, media, telecommunications, consumer businesses and financial services. Although Silicon Valley is where every VC sets up an office, we have ours in San Diego and New York, as we are currently focused on investing in different territories and deals than most others. Eventually we will set up an office in the Valley as well, as it is the most important tech hub in the world. We find geographical diversification to be key in our operational and investment strategy. The most important factor for deciding whether to invest in a company is not what the industry it is in, but the people behind it. If you have the right people but the competitive edge gets eroded, you can still pivot and come back straight out of the ashes. We tend to invest – and then re-invest – in entrepreneurs who have
been with us for a very long time and whom we know well.
I believe that a good VC has to do just 3 things right to find the correct target deals – followed by strategically nurturing the best of the best in the crop:
1) You have to be able to go to where there is a lot of fish. There are many boats looking for fish, so you have to have more boats, shinier ones and be at special places to find them.
2) You need a very good net to catch the right type of fish, and let go of the bad ones. If the net is too fine, you will get a lot of rubbish as well. If it's too coarse, the ones you want will get away.
3) Then you need to know how to grow the fish after they are caught, constantly focusing on growing and re-investing in those that emerge as the strongest from the rest.
Being a VC is about having more home runs than failures, so you have to be able to find them. Vickers failure rate is one-third compared to industry rate of two-thirds. Our homerun rate is also about a third compared to the industry rate of 15%. So we have been able to achieve half the failure rate and twice the homerun rate, which explains our being in the top quartile of the top quartile of consistent managers according to Prequin. When we started the company, we had to go out and look for the deals as an unknown VC, but as we climbed the ranks, the deals started coming to us freely. We use the media and other multipliers for new deals. For example, I moderate and speak at events such as the recently held St Petersburg international Economic Forum and the Milken Institute Conference, which helps us generate many leads. Right now, we invest 50% into opportunities from prior funds, companies that we know very well, and 50% in new opportunities that our vast and expert team research and discover. We think this balance is important because it mitigates risk and increases our home run rate.
What are some of the challenges you face in this market?
This is our first institutional fund, so our challenge is to find good investors by being institutional-ready. We are going to the US for this fund simply because we are under-represented in the US, while well represented internationally, especially in Europe and Asia.
Another challenge is succession planning. I am still 55 years young, but in 10 years, I will be 65. I think it’s important to have a successor(s) ready. I have to create redundancies so that nobody is indispensable, including myself; Vickers can’t fall apart just because I am not there. I need to institutionalize the process – ensure that all the reasons for decisions that seemingly come from the gut and heart are explained and saved in institutional memory. In any challenge that may arise, people will be able to make the decisions not just because they listen to their head, but to their gut and their heart as well. Institutionalizing by teaching and explaining the methodology behind these types of decisions can be challenging, which is why I have each of these new team members asking their mentors questions about how they arrived at their decision-making; that then helps their mentors understand better how even they came to the decision they did, which then makes it easier to save the reasons in institutional memory. So a big part of my job right now is succession planning and institutionalizing the firm. I have hired 10 of the smartest people I can find in the last year, all in their 30s, so that I may groom and train them to eventually take on the leadership role from me and my partners. Vickers is leading the industry and doing remarkable things currently but we have even bolder expectations and I hope to achieve these targets before I retire.
How are you different from you key competitors? Who are they?
Because of our unique sourcing networks and our global presence in both developed and developing countries, we do not compete consistently with any one VC. What sets our philosophy apart, is that we invest in the rising tides of the world. B Even if a nation or industry is not yet on the radar of other VCs, a rising tide will always rise and lift most boats. The US economy is the largest in the world, currently almost double the size of China, but China will be the largest in 15 years due to the sheer number of people; behind these two nations will be Southeast Asia and India. Vickers Venture Partners’ presence is strategically located in these areas: Shanghai, Singapore, the US and shortly India as well. Our team of 28 people are all homegrown and Western-trained. This means they understand the culture they are working in and the nuances that come with it, but all have an open-minded thinking mindset, which is one of the greatest gifts of Western Education. This for us is essential, and another key factor of our strategy, and something that I believe also sets us apart from the rest. We are homegrown in the regions that we invest in, and are educated in the best school in the West like Chicago, MIT, Stanford, Cornell and Cambridge. On top of that, we have all worked in innovative companies like Goldman Sachs, McKinsey and in national governments, and collectively are fluent in 10 languages. It's hard to find a group like that that has stayed together for so long.
Having offices worldwide for a team of our size is unusual. Most other companies will not expand their operations to this number of offices (4) or team-members (28) for so small a fund. But we strategically have offices in cities and countries where we feel it is essential to have boots on the ground. We have a macro and micro view on identifying trends in the market, and through that, we can set micro trends around the world: this is our top-down, bottom-up strategy.
Our fishing net is different from most others. If it’s a company everyone wants to be a part of, then it’s probably a boring one. We like the companies that are not obvious and may not always look shiny on the surface. VCs are supposed to make high reward bets and sometimes it’s not so obvious that it could work, which is why it’s a difficult system to design around to ensure the crazy ideas get funded and yet not take too much risk. Through trial-and-error, we have found the secret sauce that works for us.
In the VC world, competitors also cooperate with each other since the round sizes are getting larger and larger with enough space for more than one VC. In every country and region, our competitors are typically the best of the best of that region, but there are few that we see that are common in all the regions and industries, which we are in.
How are you changing the landscape of your industry?
Firstly we spend a lot of time thinking and interacting with the companies before we spend money. We get to know the entrepreneur very well before we invest anything. Secondly, we have a replicable strategy. Even if you have a strong cast, a great director, and a new storyline, that doesn’t mean the movie will be a guaranteed success. However, if you invest in Harry Potter 7, it being a success is very likely because it’s not a totally new movie, but rather half old and half new. Half of our investments are made in new movies
(riskier, but promising outliers where we can be first to the plate), and the other half in old ones for security and patronage (i.e. re-investments).
Vickers changes the landscape of the industry by having the most qualified, diverse group of people in the rising tide nations, investing with both a macro and micro lens that other VCs typically don’t possess. What’s very important is our strategy and how harmonious our team and investors are in synchronicity with each other.
Vickers changes the landscape of the industry by having the most qualified, diverse group of people in the rising tide nations investing with both a macro and micro lens that other VCs simply don’t possess. What’s very important is our strategy and how harmonious our team and investors are in synchronicity with each other.
Who is your ideal investor? How much capital are you looking to raise?
As two thirds of our offices are located in Asia, we have a lot of investors from that area, as well as from Europe. So now we are open to and interested in investment from the US, specifically to support our newer New York and San Diego offices. We like to work with those who are most similar to us: no nonsense, clear-minded, and results driven. We work best with investors who tell us exactly how it is and who get straight to the point. We also appreciate those who believe in us, our proven track record, and in our ability to successfully execute our vision. In some parts of the world, people like to tell big stories, but rarely do those stories come to fruition in action. Family Offices are ideal as they make their own decisions and are not subject to big bureaucratic boards. We have had big successes with many Family Offices, and our biggest investors come from there.
Fund V will invest in venture capital investments. It will primarily focus on Southeast Asia, China, the U.S. and other selected regions where we feel that the entrepreneurial partners have a competitive advantage and value-added products. We seek to provide capital to talented management teams that offer the potential for outstanding growth in the following target sectors: TMT (Telecommunications, Media Technology), Consumer Businesses, Financial Services, and Life Sciences.
At this moment, we seem on track for a good raise. In Fund V, we are looking for $250 million to close on July 8th. Currently, we have over $100 million closed and another $100 million softly committed from new investors. There is another $100+ million in various stages of due diligence. If over-subscribed, we are willing to re-balance the other regions to accept more US investors for a better geographic spread. A typical and preferred check size is in the $5 million mark, but depending on the investment partner, we are open to discussing investment minimums in the spirit of diversifying US investment.
What’s your mission?
Every person’s initial mission is to put food on the table and fulfill the material needs for his/her family. Everyone’s dream is therefore financial security so that they don't have to tread water every day to achieve the above. Since I passed that a long time ago, what am I doing this for?Ultimately we are all judged at the end of our lives. I want to be judged for having used my intelligence and ability to impact the world by helping the greatest number of people I can. My wife and I feel very strongly about education, especially in Africa. The population in Africa is high, and in 30-50 years 40% of the world’s population will be from
Africa. This type of population growth without enough education is troubling and deeply concerning. My wife has a Masters in Early Childhood Education and is currently visiting preschools in all parts of the world to learn more and see how we can create impact. A lot of our investors want to do more in the philanthropic world and seeing owners of big companies like Facebook, Microsoft, Berkshire Hathaway giving back to society encourages us to do so as well. We’re thinking about this a lot and analysing the best way to do the most at the next phase of my career.
What’s next for you?
We are focused on raising for our Fund V with an intended close by July 8th. I will continue to be committed to investing in good companies and taking care of our investors and the funds they entrust us to manage. The next step would be succession planning and institutionalizing Vickers. In the longer term, it would be focusing on education to the underprivileged so that we can have a better and happier world.
Dr. Finian Tan
Dr. Finian Tan founded Vickers Venture Partners in 2005 with four partners. He is currently based in Singapore.
Before starting Vickers, Finian was a Managing Director at Draper Fisher Jurvetson, acting also as the founding partner of its Asia Pacific Operations, he discovered baidu and led all the investment rounds into Baidu, and remained its largest backer until IPO.
Prior to DFJ, Finian was Deputy Secretary of Trade and Industry for the Singapore Government where he oversaw the creation of the billion dollar TIF fund and was subsequently appointed as chairman of the fund.
As part of his earlier career path, Finian ran Goldman Sachs’ Asian trading arm.
Finian received his Doctor of Philosophy and Master of Philosophy in Engineering from Cambridge University. He received his B.Sc. in Engineering from the University of Glasgow.