How deep are valuation corrections?

Antler

- Harder at later stages

- Earlier you go not as impacted
- Earlier stage also absolute terms, from $6m to $4m, not much difference

Golden Gates

- SEA the valuation are still asking for higher prices, the top 10% would still be able to
command the price, but they will take longer. Because there is overhang of dry powder
looking to deploy only in hot deals. The companies now will choose not the highest valuation
but the smartest term sheet
- Also rare for overpaying

Qiming

- 70% of US capital decreased from China

- But good because companies dying and means more talent going to the best companies
- Qiming no1 healthcare investors globally
- People worrying about where series B and C funding rounds are coming from esp given that
VCs are having trouble raising

Morgan Stanley

- Late stage valuations come down significantly

- These investments come from PE HF who are not in this space traditionally so now that they
went away there is a big gap and valuations sink
- Early stages still have pent up capital

Is valuation corrections good for the market?

- 2017/2018 fundraising in china was the same vs US

- So didn’t make much sense. GDP, salaries, etc very different.
- Now more caution around what the capital is being used for, business models, capital
efficiency

Antler

- Good for early stage because valuations are more palatable

- Of course no one likes what happened to their portfolio but it is a good time to deploy

Which business models are a turn off?

GGV

- Unit economics weak, margins tight, no defensive position

- Market size normally a problem in SEA. Normally not the team that is a problem
- Consumer or PE business disguised as VC business not attractive. Returns are not “venture”
 Qiming

- Business models where the company has raised a large sum of money and not concerned
about cash burn
- Consumer is not very popular
- Semiconductors not popular because of EU and consultations
- 6 a few years ago, last year was 29 in China
- Healthcare is interesting transformation out of China esp because of Covid
- Everyone has been visiting China because there is so much science coming out of China

MS

- Consumer is out of favour, valuations are down. But can still find some business models that
are attractive
- China technology has really caught up with US. In certain cases the tech is better than US
- EV for example, better in terms of sales and supply chain
- Indian, SEA, still very fragmented, potential for digitalization
- Not about the business model, its about the fundamentals

Tension between capital efficiency and growth

Antler

- Anything that requires capital to grow is not hot now

- But cannot ask early stage seed stage companies to go for profitability. Too conservative,
cannot go for venture returns. Doesn’t protect the risk reward. There’s a reason why they
are seed stage and asking for venture

MS

- As an LP they are looking for optionality

- 1/3 home run, 1/3 2-3x (which you can get in PE strategies), 1/3 write down
- The nature of VC is to take risk
- Not the right person to talk about taking risk but venture is venture

What can VCs do to help portcos with cash burn management

Qiming

- 36 IPOs since covid including 7 this year

- Spend a lot of time helping teams grow because they are seed investors and the team then
has 3 man
- Strategy, regulation, relations, recruitment
- Not just cash management
 Antler

- Always want fundraising support, call up their mates

- Senior management talent support always important
- Don’t value advice. Can share data, can share examples, but as investors your advice is just
your opinion

GGV

- Best founders don’t need a lot of help. If they need help then we are in trouble
- Fundraising is the number 1.
- SEA is always about expansion. Sometimes organically, sometimes acquisition. Last few
years helping them to expand to ME
- Doing work with founders and mental health

MS

- One step removed, but VC founders are very lonely

- Not about being there all the time but at the right time. Cannot be intrusive
- VCs have the advantage of seeing a lot of companies

How to have tough conversations?

Qiming

- Work with them through thick and thin. Frequently first cheques.
- If they don’t agree on projections can send team over to work with CFO
- Bring them to clients, let them see reality

Secondaries

MS

- Secondaries in LP – traditionally expectation of 20-30% discount. But now can be as low as

70% discount.
- A lot of noise around VC portfolios. A lot of sellers, not a lot of buyers
- Secondaries in companies – some of the VCs use it as a effective tool. Been in the position
for 10 years and needs to show distributions to LPs. But pricing is still discovery
- Pricing portfolio is harder than pricing companies

Qiming

- Rarely exit through secondaries, prefer to go through IPO when the window opens
- Because of their portfolio focus so will wait it out
Antler

- More for partial sales

- Will always be there as a tool. If market is difficult, no line of sight towards liquidity, if there
is a buyer available wont say no right
- But the valuation bid ask spread is still big

GGV

- Esp for geographies where IPO markets are not strong, secondaries are important
- Like for Japan, no point, there’s like 50 IPOs but in countries like Indonesia, Singapore, not a
lot of tech IPOs then you got to think about how to exits