The Asia Opportunity

1
The Asia Opportunity
Overview of Markets in China, India, Japan and
Korea
February 2, 2009
GROVE STREET A D V I S O R S LLC
2
Introduction to Grove Street Advisors

• Independent PE advisory firm established in 1998,
  HQ outside of Boston, MA
• 6 full-time Partners, 35 total employees
• Over 100 years of combined GP and LP experience
  across more than 18 billion of investments in
  private equity since the early 1980s
• Exclusively focused on providing customized
  separate account private equity services
• Nine institutional clients, 19 separate programs
  and over 6 billion in AUM
• Approximately 90 active fund managers globally

DT??
IVF
Source United Nations Indian Department of
Commerce
3
Overview

• Roughly 2.65 billion people living in China (1),
  India (2), Japan (10) and Korea (25)
• Represents over 39 of the worlds population
• Very different demographics in China/India versus
  Japan/Korea
• Domestic markets in China and India are
  substantial
• Presents both an opportunity and a challenge
• Trade between these countries is critical
• China represents the largest export market for
  both Japan and Korea, ahead of the US and the EU
• Trade between China and India exceeded 50
  billion in 2008 and may hit 100 billion within 3
  years

Source United Nations Indian Department of
Commerce
4
China

• Technology markets are very large
• Internet users total 250M
• Fixed landline subscribers exceed 365M
• Number of mobile subscribers exceed 610M
• Energy and infrastructure demands need to be
  balanced
• Talent pool is substantial
• Nearly 5.6M college graduates in 2008
• Central government continues to play an active
  role
• Regulations of key industries impact FDI
• 4 trillion yuan stimulus package by end of 2010

China
Population 1.33B GDP 3.5 trillion (3) GDP
(PPP) 7.5 trillion (2) GDP Growth 2008
9.0 GDP Growth 2009 8.5 CPI 6.3
Source China Economic Review IMF World Bank
GSA Analysis
5
Funds and Amount Raised 2008
Deals and Amount Invested 2008
USM
USM
Note 2008 Data through November 2008 Source
Zero2IPO
6
Stage of VC Investments in 2008
Sectors of Investment
Information Tech
36 (1.32B)
Traditional
21 (769M)
Undisclosed
14 (531M)
USM
Services
14 (528M)
Clean Tech
8 (302M)
Healthcare
7 (258M)
Note 2008 Data through November 2008 Source
Zero2IPO
7
Domestic Firms Have Originated through a Variety
of Means
Corporate Sponsorship
Government
DT Capital iD Tech Legend Capital SAIF SBCVC TDF
Capital
Shanghai Venture Capital Shenzhen Capital
Group Suzhou Ventures Group
International Expansion into China has taken Many
Forms
Franchise Affiliate or JV
Single Fund with China Presence
Partnership or Sponsorship
Other
DFJ DragonFund IDG Accel GSR Qiming Venture
Partners Sequoia Capital China
Atlas Ventures Bessemer Ventures BlueRun
Ventures DCM GGV Capital Lightspeed Ventures NEA
Gobi Ventures InfoTech KPCB China Northern
Light Matrix Partners China
Battery Ventures Steamboat Ventures
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China Venture Capital Billion Dollar Exits
Market Cap. (USB)Today Peak
Market Cap (USB2)Today Peak
IPO
IPO
2003/NASDAQ
1.4B
4.5B
2005/NYSE
1.7B
13.3B
2004/HK
0.7B
5.8B
2006/NYSE
2.0B
3.4B
2004/NASDAQ
1.9B
3.1B
2007/NYSE
1.6B
8.4B
2004/HK
9.7B
16.6B
2007/NASDAQ
0.9B
2.0B
2005/NASDAQ
1.0B
8.6B
2007/HK
3.6B
25.9B
2005/NASDAQ
3.8B
14.0B
Note Order Relative to IPO dates 1 HKD
0.12888 USD
9
India
India

• Technology adoption is strong and growing
• Only 30M PCs in India
• Internet users total 60M, only 5.2 penetration
• 100M mobile subscribers in May 2006, 200M
  subscribers by August 2007 and 300M by mid-2008
• Social inequities remain an issue
• 27.5 of population below poverty line
• Political and social risks relating to Pakistan
  are difficult to assess
• Substantial investment in infrastructure will
  continue

Population 1.15B 07 GDP 1.1 trillion
(12) 07 GDP (PPP) 3.0 trillion (4) 08 GDP
Growth 7.9 09 GDP Growth 2009 6.9 WPI 5.9
Source IMF Office of the Economic Advisor
World Bank PERC Telecom Regulatory Authority of
India
10
Amount Raised for Indian PE (AVCJ)
Amount Invested in India PE (AVCJ)
USM
USM
Amount Invested in India VC (Venture Intelligence)
Amount Invested in India VC (AVCJ)
USM
USM
Note AVCJ as of 12/31/08 Venture Intelligence
through 9/30/08 Source AVCJ Venture
Intelligence
11
Stage of VC Investments in 2008 (Venture
Intelligence)
Stage of VC Investments in 2008 (ACVJ)
USM
USM
Note AVCJ as of 12/31/08 Venture Intelligence
through 9/30/08 Source AVCJ Venture
Intelligence
12
Venture Intelligence Data
AVCJ Data
Sectors of Investment
Sectors of Investment
Financial Services
27 (2.9B)
IT
55 (361M)
Telecom
10 (1.1B)
Financial Services
8 (54M)
Healthcare
8 (52M)
Infrastructure
9 (987M)
Energy
7 (48M)
Transportation
9 (919M)
Infrastructure
5 (33M)
Utilities
7 (795M)
IT
7 (734M)
Education
3 (23M)
Other
14 (90M)
Other
31 (3.3B)
Most Active VCs
Sequoia Capital India Helion Ventures Erasmic
Ventures IDG Ventures India NEA-IndoUS Ventures
Note AVCJ as of 12/31/08 Venture Intelligence
through 9/30/08 Source AVCJ Venture
Intelligence
13
Japan
Japan

• Lost decade after the asset bubble burst in the
  late 80s
• GDP growth through the 90s averaged 1.5
• High consumer savings rate
• Diverse base of global industry leaders
• Sectors such as automotive, consumer electronics,
  telecom, Internet, digital entertainment, heavy
  machinery
• Early adopter and leader in sectors such as
  wireless
• 105M mobile subscribers
• 96 of high school students have a mobile phone

Population 127.7M GDP 4.4 trillion (2) GDP
(PPP) 4.3 trillion (3) GDP Growth 2008
0.7 GDP Growth 2009 0.5 CPI 1.0
Source Ministry of Economics IMF
Telecommunications Carriers Association
14
Korea
South Korea

• Economy is highly export driven
• Hit hard by current economic downturn
• Dominance of chaebols both locally and globally
• Hyundai, Samsung and LG with revenues greater
  than 100B
• Important technology test market relative to
  the size of the economy
• 93 broadband penetration, highest in the world
• Gaming market topped 2B in 2007
• 250M handsets shipped in 2007

Population 48M GDP 0.97 trillion (14) GDP
(PPP) 1.2 trillion (14) GDP Growth 2008
3.7 GDP Growth 2009 0.7 CPI 4.1
Source Korean Development Institute Ministry of
Strategy and Finance Ministry of Knowledge
Economy Bank of Korea Gartner Group Pearl
Research GSA Analysis
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Challenges Accessing These Markets

• Language can be a major impediment outside of
  India
• Significant cultural differences in doing
  business can be found in each of these countries
• Critical role of networks and personal
  relationships (leveraging guanxi in China)
• Need for local context to assess the quality and
  importance of government or other relationships
• Recruiting and stability of teams continues to be
  a major issue
• Rules of law vary widely and lack of transparency
  to outsiders may pose a risk
• Difficulty in vetting and doing DD around
  potential business partners
• Tax and government regulation may favor local
  incumbents

Source United Nations Indian Department of
Commerce