This article is from the June 15 & July 1, 2001, issue of Red Herring magazine.

As American venture capital firms struggle with troubled portfolio companies and fund-raising efforts, things aren't as tough for their counterparts in Asia.

Several top Asian VC firms are closing their largest funds ever. Walden International recently finished raising its biggest Asian technology fund -- $1 billion -- and Walden founder and chairman Lip-Bu Tan says the firm could have raised $1.5 billion. Three years ago, H&Q Asia Pacific raised $750 million to invest in all of Asia; this April, H&Q raised $400 million to invest in wireless in Japan alone. And ConnectCapital in Mumbai is raising $100 million to invest in Indian tech companies. India-dedicated VC funds should raise $1 billion this year, up from $20 million in 1996, according to India's National Association of Software and Service Companies, a software industry group.

Meanwhile, established U.S. VCs are entering the Asian scene. In February, Cisco Systems (Nasdaq: CSCO) joined with Japan's Softbank to raise $2 billion to invest in broadband, wireless, optical networking, and the Internet in Asia.

ASIAN DRAWS The Asian Venture Capital Journal estimates that VC firms in Asia raised $16 billion in 2000, compared with $7.4 billion in 1998. That's a surprising increase, because, as Dan Schwartz, the journal's publisher, points out, "the deals and returns are better in the U.S." Among the factors he lists as draws for Asian VCs are Japan's and Korea's advanced wireless infrastructures, India's pool of skilled tech workers, and China's large population.

U.S. institutional investors like the California Public Employees' Retirement System, the pension and health care fund for the more than 1 million California state employees, are feeling less anxious about Asia's financial crisis and political volatility and are increasing their investments in the region's funds.

But Asian investments aren't for the impatient. Companies can list on Nasdaq-type upstarts like Japan's new Market for High-Growth and Emerging Stocks exchange (MOTHERS), but attaining liquidity is a dream. Returns on portfolios, typically in the single digits, have been hit by overly optimistic dot-com investments. And VCs must have exceptional scouting skills to find deals in Asia's diverse landscape.

That's particularly true now, since at today's lower valuations, funds are stretched across more startups. Purvi Gandhi, chief financial officer at H&Q Asia Pacific, says her firm is hiring five people to make 20 to 25 deals over the next few years; Walden is also adding five people. Just don't expect Asia to earn the 100 percent returns of the Internet bubble years anytime soon.

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