Venture capital fund KYMCO Capital is turning its gaze to thriving start-ups in Southeast Asia, after spending the past decade in China investing in automobile supply chain companies and building its strength. KYMCO Capital managing partner Gary Ting talked about the fund’s investment strategies and his vision in an interview with ‘Taipei Times’ staff reporter Lisa Wang on Dec. 6 in Taipei
Taipei Times: Why did you and your partners want to start KYMCO Capital (金庫資本) a decade ago?
Gary Ting (丁學文): The fund was started 10 years ago to help Taiwanese companies tap into the Chinese market. A large number of Taiwanese firms found it difficult to break into the Chinese market because they did not know how to cater to Chinese tastes.
Kwang Yang Motor Co (光陽工業) set an example. About 24 years after entering the market, Kwang Yang maintained a marginal market position with annual sales of 10,000 KYMCO-brand motorcycles in China back in 2009, while the market was estimated to have annual sales topping 28 million vehicles.
At that time, Kwang Yang’s 400 component suppliers all faced the same problem of breaking into China’s automobile market, which was a relatively “closed and protected” market compared with the US or Europe. That was when KYMCO Capital came in and decided to serve as a platform, helping those companies to build partnerships and leverage each other’s strengths.
TT: What did you do to help Taiwanese firms overcome that bottleneck?
Ting: We truly believed that it would create the biggest value by integrating Taiwanese firms’ technologies with the wisdom of Chinese companies.
We thought equity investment was an appropriate way to facilitate such integration, so we came to the conclusion that we could provide technology and know-how by acquiring stakes from 6 to 30 percent in any company.
The Shanghai City Government was the first supporter of the fund, and Shanghai was the place where the fund started. Now we also have offices in Taipei, Singapore and New Delhi.
TT: What was the fund’s first investment project?
Ting: In 2012, the fund invested 60 million yuan (US$8.6 million) in Luyuan Electric Vehicle Co (綠源電動車), China’s second-largest electric scooter brand, as we wanted to know how to sell electric scooters in China’s second-tier and third-tier cities.
We also wanted to know how to build an electric scooter with retail prices as low as 2,000 yuan.
A year later, the fund and Luyuan created a joint venture called Luyuan Kwang Yang (綠源光陽) in Hangzhou, Zhejiang Province, which is one of China’s automobile hubs, with initial capital of 10 million yuan. The investment proved a good bargain.
With less than 100 million yuan, we built our distribution channel, established our brand and obtained a share of the local market.
TT: How big is the fund and who are its investors?
Ting: KYMCO Capital now manages seven funds with a combined capital of US$370 million. The fund operates independently from Kwang Yang. The motorcycle maker is an important investor in the fund, and we have been focusing on investing in motorcycle and automobile supply chains since day one.
The number of investors in the fund has grown to 37 from 11 in the initial stages. Most of them are from the automobile industry, including battery maker Simplo Technology Co (新普科技), electronic components maker Cheng Uei Precision Industry Co (正崴精密) and automobile bearings supplier Hengtong Machinery Co (亨通機械). Break and rear mirror makers also invested in the fund.
TT: What are the fund’s next investment targets? Are there any ongoing projects?
Ting: We concentrate on four major markets — Taiwan, China, India and Southeast Asia. We like start-ups because we believe that they are going to impact to human life in the next decade, just like the iPhone has totally changed daily life and retailers’ business models and consumer behavior. Electric vehicles and their supply chains are among our favorites.
We like unicorns. Therefore in China, we are in talks with Alibaba Group Holding Ltd’s (阿里巴巴) supermarket retail arm FreshHema.com (河馬鮮生) and Chinese food delivery platforms Meituan-Dianping (美團點評) and Ele.me (餓了麼) to sell electric scooters to them and offer fleet management services.
In Southeast Asia, we are teaming up with Singapore’s ride-hailing company Grab, and in India, we are working with taxi-hailing company Ola and motorcycle-sharing service provider Bounce.
In sum, we hope to make returns for our investors via equity investments and to provide vehicle and fleet management services through Kwang Yang.
TT: Kwang Yang’s business model is different from that of its rival Gogoro Inc (睿能創意). What are your thoughts on that?
Ting: The business models are completely different. Gogoro primarily sells its electric scooters to average consumers, which is a business-to-consumer (B2C) model.
However, Kwang Yang concentrates on the business-to-business (B2B) market by providing vehicles to drivers of Grab and food deliverers from Meituan-Dianping and Ele.me. Kwang Yang also helps to make sure that electric scooter fleets are dispatched in a more effective way.
As electric scooters are costly, we think it is easier to make money via the B2B model.
Starting next year, Kwang Yang plans to evolve into a company that powers electric vehicles running on the streets of southeastern Asian countries, India and China. To us, the B2C model would not work eventually.
[Editor’s note: Taiwanese electric scooter-sharing service provider Wemo Corp (威摩科技) has also adopted Kwang Yang’s vehicles to offer its services.]
TT: What is your view on Gogoro’s business model?
Ting: High battery costs is the number one pain point. It is easy to calculate the costs, as almost all electric scooter makers source batteries from LG Chem Ltd.
Each Gogoro vehicle is equipped with two batteries totaling NT$50,000, which does not include the costs from those stored at its battery swapping stations.
In addition, battery performance degrades over time, sometimes in just three years, while it might take seven years to recoup the costs.
Furthermore, Gogoro possibly generates cash only from collecting monthly fees from 200,000 riders.
As such, the company is heavily reliant on government subsidies to stay on the market.
However, with subsidies falling starting next year, Gogoro’s business model could lead to financial problems, if it does not receive new capital injections.