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A peek into the workings of GIC's tech investment group
WITH the fast-moving tech space littered with innovations galore, it can be hard to suss out which are tomorrow's game changers and which are the duds.
As the Republic's sovereign wealth fund, the challenge for GIC is compounded by the need to balance risk and reward carefully.
Head of its technology investment group Jeremy Kranz said it comes down to building strong relationships with technology firms and investing in those with good business models at the very right moment.
While GIC has been investing in technology over 30 years, it formed Mr Kranz's team more than a year ago, to better deploy capital, increase business development efforts and to highlight tech disruption risks for the benefit of GIC's overall portfolio.
The group has teams based in Silicon Valley, China and India and has investments in over 50 companies in eight countries, with cheque sizes anywhere from "single-digit millions to single-digit billions," said Mr Kranz. Given GIC's long-term view, the group has a broad mandate, ranging from startups all the way to big listed companies.
Internally, GIC describes its strategy in the tech space in the framework of "offence, defence and excellence," said GIC chief executive Lim Chow Kiat. This includes hunting for good companies, protecting its portfolio from disruptive threats and learning from the industry.
In its search for high-potential firms, the group adopts a bottom-up strategy. It seeks entrepreneurs who can execute well, not just based on broad themes or a strict formula.
"The greater weight is on finding the founders who discover something novel that people want to buy, as opposed to imagining a category and then finding someone in that category," Mr Kranz said.
Relationship building from the very early stages is key, said Mr Kranz, who is based in San Francisco and has been with GIC since 2004.
For example, GIC led a US$200 million funding round for US consumer lending company Affirm in 2017 (see amendment note), but GIC has known founder Max Levchin since Affirm's early days as a startup.
Mr Kranz's group is sometimes hands-on and keeps its ear to the ground, with members working as grocery delivery drivers and rideshare drivers to better understand the business.
It also helps that GIC has a long relationship with venture capital firms dating back to its opening of a San Francisco office as early as 1987.
"That gives us the knowledge and networks to figure out which are the startups that are going to a growth phase and reach an inflection point," Mr Kranz said. "We invest directly at that moment."
GIC's global nature allows it to also draw connections between different regions, learning key signs that a business is taking off in one country and then applying those insights in another.
It invested in China's Meituan-Dianping's US$4 billion financing round led by existing investor Tencent in October 2017. As an existing investor, it also participated in a US$535 million funding round for DoorDash led by the SoftBank Group in March 2018.
Technology itself has also helped GIC by allowing it to access data that was historically hard or impossible to get, and use more powerful analytics. GIC may also use artificial intelligence down the line, said Mr Lim.
Keeping tabs on the tech space also has another benefit for GIC - the ability to learn how technology could impact other holdings within its overall portfolio.
Aided by technology, competition can now come from outside the industry, posing risks to businesses that rely on a middleman, lack a digital strategy or struggle to reach their customer, said Mr Lim.
"If there are new technologies or business models, we want to know about it as soon as possible so we dont get surprised by new competitors or new ways of doing business too late," said Mr Lim.
If the potential disruptor lies within GIC's umbrella, GIC will connect it and the traditional business for opportunities, but if one of GIC's companies is being disrupted from outside, "the logical thing for us is to reduce our exposure," Mr Lim said.
Engaging incumbent businesses can also go beyond just the investing space to the tech ecosystem. One example is the inaugural Bridge Forum held between March 12 and 14 this year by GIC and Economic Development Board (EDB).
The real-estate technology themed summit in San Francisco allowed over 40 Asia-Pacific firms to learn about technological disruption and meet with over 30 real estate tech startups in the Valley. One of the participants was CapitaLand CEO Lim Ming Yan.
He said the forum was a good platform to connect with thought leaders and disruptors from the Silicon Valley. "Ranging from startups, unicorns to established tech companies and tech investors, they offered actionable insights and innovative solutions in urban mobility, sustainability, connectivity, real estate financing as well as building technology...
"The relationships forged at the forum will be highly relevant and complementary to CapitaLand's integrated real estate value chain experience, not just here in Singapore, but across our global portfolio."
GIC also partnered Startup Weekend for Startup Weekend Singapore Mega 2017, a hackathon that drew 250 participants. Such events help GIC learn more about the industry, such as by growing stronger ties with engineers. "They can tell you what technology is able to conquer or not conquer," said Mr Kranz.
Still, GIC has to balance risk and reward carefully. The technology investing group rarely invests directly at the earliest stages and although Mr Lim thinks blockchain is important to pay attention to, GIC does not invest in bitcoin. "I do not think we know enough about it," he said.
Overall, technology only represents a slice of GIC's diversified portfolio, which is also "a very balanced one," with more stable assets such as real estate helping GIC "get through different economic environments," said Mr Lim.
One edge GIC has is its long-term view. Unlike traditional private equity or venture funds, it has the flexibility to hold on to such investments when they go public, said Mr Lim.
"If our company is going to have compounding returns post-IPO and we have a relationship with them, why not just hold the stock?" he said.
Being in it for the long haul also allows GIC to engage with businesses throughout the entire life cycle, adding value beyond just the investment, said Mr Lim.
One example is Chinese smartphone maker Xiaomi, which GIC invested in more than five years ago.
GIC sponsored Xiaomi's incubator Xiaomi Ecosystem which has spawned innovations such as Ninebot, makers of an electric unicycle, as well as the Mi air purifier.
"It's not just that we invest in the company and that's it, we wait for the return," said Mr Lim. "We help our investees and industry partners to create new businesses and new ideas."
Amendment note: An earlier version of the artcle had stated GIC led a S$200 million (S$270 million) funding round for Affirm. This is incorrect as GIC had led a US$200 million funding round. The article has been amended to reflect this.