Vertex Ventures US upbeat for data startups

The healthcare, manufacturing, mobility and retail sectors were slower to adopt digital technologies than the telecom and e-commerce industries in the real-time, data-driven era.

But they are now accelerating their digital transformation to enhance efficiency, which in turn will create better investment opportunities for venture capital and private equity companies relative to other sectors, said Insik Rhee, a general partner of Vertex Ventures US.

“It's all about efficient growth,” he told The Korea Economic Daily in a recent interview.

"Digital transformation means investing in companies that can capture real value. If I sell you something that allows you to compete better and faster than your competitors, wouldn't you pay me a lot of money?"

Vertex Ventures US is an independently-managed network fund of Vertex Holdings, a wholly-owned subsidiary of Singapore's state fund Temasek. 

Since joining the VC firm in 2015, the entrepreneur-turned-venture capitalist has been zooming in on data protection and factory automation companies.

He cautioned that high interest rates will continue to place pressure on startups for most of this year, but said there is hope that the market will pick up in the fourth quarter.

Despite the abundant "dry powder" or unspent money in the investment market, later-stage startups are struggling to raise funding due to the high valuations they enjoyed in early-stage funding rounds.

Particularly, startups in marketing, human resources and sales technology, where companies are cutting costs, are having a tough time.

“But there are still markets that are doing well: startups that help companies cut costs and increase productivity through automation are still getting good valuations,” Rhee said.

The data processing expert advised they need to "figure out how to shine" during the economic slowdown.

EXIT FROM STARTUPS

The sluggish IPO and M&A markets might provide better opportunities for VC firms to exit for decent premiums than in the bullish stock market, he added.

When the stock market was on a roll, PE companies opted for an IPOs or M&As to avoid paying a premium.  

“Now PE is buying growth . . . they're now willing to pay a decent premium for a good company, which means there are more opportunities for VCs like us, who invest in early-stage startups.”

Rhee has built a track record as a serial entrepreneur. In the 1990s, still in his 20s, he founded two software joint ventures, Kiva Software and Loudcloud. He then sold them to Netscape Communications Corp. for $180 million in 1997, and Hewlett-Packard for $1.6 billion in 2007, respectively.

Asked about the ChatGPT fever, he said generative AI would serve as a means to help people communicate information better, but is unlikely to change entire industries.

Vertex Ventures US mainly targets very early-stage startups with a ticket size of $500,000 to $10 million.

Its anchor investor Vertex Holdings manages $5 billion in assets through five early-stage funds and one growth-stage fund. 

Rhee immigrated to the US at age 9 and studied electrical engineering and computer sciences at UC Berkeley.

(Updated on June 20 to clarify the relationships between Vertex Ventures US and Vertex Holdings)

Write to Lan Heo at why@hankyung.com
Yeonhee Kim edited this article