Good Times for Asia's Young Entrepreneurs

Thanks to an improved business climate and a wave of funding from U.S. venture capitalists, the region's entrepreneurs are finding success right at home

Time was, the goal of an ambitious young Asian entrepreneur was to make it big—in the U.S. When Bo Shao got an MBA from Harvard Business School in 1999 and then returned to China to launch EachNet, an eBay-style consumer auction site, he was the exception to the rule, he recalls. "Of the 11 people originally from mainland China in my Harvard class, I was the only one in China," says Shao. "Everyone else wanted a green card."

In the years since, the situation has reversed. With top Silicon Valley venture capital firms on the prowl in China, India, and other parts of Asia, all of them eager to fund the entrepreneurial dreams of young Asians, now it's unusual to find people who don't want to return to the region, says Shao. Of his other Harvard classmates, "all of them are in China today, which is amazing," he says. "I would venture to say that most people from subsequent classes are in China." One lure was the success of Shao himself: After launching EachNet in 1999, he sold the company to eBay (EBAY), which bought a minority stake for $30 million in 2002 and then paid $150 million for the rest of the company in 2003.

That's the kind of payoff many young entrepreneurs in Asia have in mind. This year, BusinessWeek's annual report on Asian entrepreneurship features 25 finalists for the title of Best Young Entrepreneur in Asia. BusinessWeek readers nominated candidates and the magazine's editors and reporters in Asia suggested names, too. We then narrowed down our list to 25 people whom we feel best represent the creativity and energy that's now increasingly common among startups across the region. Readers can see profiles of the top 25 and vote for their favorite here.

Not Just Low Cost

Young business people like these are catching the attention of American financiers, who are taking notice of the improved climate for local entrepreneurs. Dave Furneaux is founder and managing general partner of Kodiak Venture Partners, a VC firm based in Waltham, Mass., that has $700 million under management and has been doing business in the region for more than 15 years. When he first started funding startups in the early 1990s, he says, most of the focus was on Asian immigrants in the U.S. who had gone to American universities and then stuck around to work for companies and eventually start their own. Later, he says, people like Shao would decide to return home and start their companies back in Asia.

"We are seeing the next wave," says Furneaux. Universities in China itself are improving rapidly, and now more and more of the country's top students feel they don't need to leave China to get a top-notch education. So American VCs are paying more attention to local entrepreneurs who have never lived in the U.S. and have a good feel for the local market's needs. "As a result, you see more entrepreneurship springing up," he says. "It's become viable and there's more of a need for companies."

There's also a growing base of startups that are basing their businesses not just on leveraging Asia's low costs but on providing creative solutions to problems. John Hummelstad, regional director of emerging technology and venture capital in Asia-Pacific for Microsoft (MSFT), says he's impressed by the dynamism of entrepreneurial companies in India, China, and Southeast Asia. In India, for instance, "you see some incredibly innovative software companies that have developed their own intellectual property and are going to the rest of the world," he says. "Before they were writing code for others, and now they're developing their own code base and moving forward from there."

Barriers Remain

Fortunately for young people starting up new businesses, there's a growing familiarity with entrepreneurship, especially among Chinese and Indians. Avnish Bajaj last year started Matrix Partners, a Mumbai-based firm focusing on early-stage investments. He himself is a former entrepreneur, having started consumer auction site Baazee in 1999. (Like EachNet's Shao, Bajaj also sold his company to eBay, in 2004.) "Since 1999, there's been a sea change," says Bajaj. "The entrepreneurial ecosystem has changed." He recalls starting Baazee and trying to negotiate office space with a landlord who wanted to see four years of the startup's balance sheet. "So we didn't have an office for a year," says Bajaj. "Today, people know what startups are and don't ask those kinds of questions!"

While young entrepreneurs in China and India are well positioned to benefit as financiers in the U.S. pour more money into the region, not everyone is in such good shape. Claudia Fan Munce, managing director of IBM's (IBM) venture capital group, says South Korean tech startups used to get three times the amount of VC investment their Chinese counterparts received. "Now it's the reverse," says Munce, who estimates tech-related companies in China got between $600 million and $700 million in VC money last year, compared with just $290 million for Korean companies.

Money isn't the only problem. In some Asian countries, many cultural obstacles still remain for entrepreneurs. Hsu Ta-Lin, chairman of H&Q Asia Pacific, is a venture capital pioneer in Asia and has many years experience funding startups throughout the region. He recently was in Tokyo and went for dinner with some Japanese entrepreneurs who bemoaned the fact that Japanese culture still is not supportive enough to young people keen on launching their own businesses rather than going to work for big corporations. Hsu's dinner companions "all commented that they were rare species in Japan," he says. "They very much have tried to promote entrepreneurship in Japan, but they understand that it's a very, very difficult thing for Japanese."

The Next Hot Spot

Meanwhile, venture capitalists are likely to keep on looking for new entrepreneurs to back in less mature parts of Asia. IBM's Munce, for instance, says there are now 6,000 venture-backed companies in Beijing, compared with almost none five years ago. Indeed, so many foreign and local VCs want a piece of the action in China it's becoming a problem for investors to find startups to back. Great news if you're a Chinese entrepreneur looking for capital, less so if you're an investor having to compete with lots of others for a limited number of deals. "The deal flow is very difficult," she says. "There's too much hype about investing in China."

That's one reason less developed countries such as Vietnam are becoming an interesting investment opportunity. The Vietnamese, Munce says, are "trying to mimic China in attracting venture capital to nurture entrepreneurship." While IBM itself has not yet made any investments in the country, "I'm finally motivated to look deep into Vietnam," says Munce. "I'm seeing a lot of real VCs trying to look for deals over there."

Before it's here, it's on the Bloomberg Terminal.