Omakase and The Art of Venture Capital

(日本語版)

Dinner conversation with CHUA Kee Lock, CEO, Vertex Holdings.

“Venture capital is a people-centric business. The best start-ups with transformational technologies or disruptive business models can come from anywhere in the world. Our leading investment partners - natives in key startup ecosystems, with deep knowledge and networks is what makes Vertex special.”

Mr. CHUA Kee Lock - successful serial entrepreneur, corporate leader, venture capital chief and diplomat. He made his name in MediaRing, Biosensors, Walden International, Vertex and more recently, also as Singapore’s Non-Resident Ambassador to the Republic of Cuba and the Republic of Panama.

"We're trying to solve problems in the sectors we identify and sometimes we unintentionally end up disrupting market leaders. But it's better to disrupt yourself than get disrupted by others" he says. Over saba from the Aomori and Nagasaki prefectures and sips of Suzuden-Beccho, Daiginjo sake, he talks to Takaki NAKAMURA and Yui IKAI from Vertex’s Partnerships team about his journey in innovation, being inspired by transformational startups, and how corporates, institutions and governments can work with disruptive technologies or business models through innovation partnerships.

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20 January 2020. We are meeting our CEO, Mr CHUA Kee Lock for dinner at an omakase sushi bar in Hibiya, Tokyo. This catch up after a series of back-to-back media interviews on the successful close of our USD 730M Vertex Master Fund II (i.e. VMF II).

In addition to anchor investment from Vertex Holdings, VMF II counts notable Japanese institutional investors or Limited Partners (LPs) including Japan Bank for International Cooperation (JBIC), Development Bank of Japan (DBJ), Marubeni Corporation, Sumitomo Mitsui Banking Corporation (SMBC), ABeam, RISA and Aozora Bank. Over the course of the next two hours, our CEO shared Vertex’s investment philosophy, strategy and helped us understand the similarities between venture capital investing and the art of omakase.

“The world of sushi cuisine is one that can be described in extremes – either you are very successful, a perennial name in the Michelin Guide or you are not. In the final analysis, what sets consistently exceptional omakase sushi bars apart from the rest of the pack boils down to the superior ingredients used. This is akin to the art of venture capital investing” he shares.

As the subsidiary of Singapore state investment firm Temasek Holdings, Vertex currently manages over USD 3.5 billion across our family of venture capital funds and has offices in Singapore, Indonesia, India, Israel, China and the US. Each of our funds operate independently - specialising in early-stage and/or growth stage investments in the IT and healthcare domains.

“How is venture capital investing similar to omakase? ” Takaki asks.

Reminiscing his professional journey, Kee Lock replies: “Takaki, Yui, you’re both fairly new to venture capital. Let me share with you the secret to Vertex’s renaissance since I was invited to lead – it’s all about great startups. These are investment opportunities that only the best venture capital firms can gain an allocation to.”

He adds: “In omakase, the analogues are great ingredients that [1] speak of their origins or birthplace, [2] possess the flavourful intensity and elegance akin to great wines, [3] with flavours that have incredible length, [4] where they exhibit amazing authenticity and [5] have longevity - experiences that live in one’s memory indefinitely.”

Sushi bars are often referred to as “omakase” sushi bars, which literally means in Japanese “to leave something up to a person”, where the sushi is served by a chef called “Taisho”. A lot rides on the shoulders of the Taisho, as they are given the task of serving the best sushi dishes for their customers based on the seafood/produce in stock that day and customers’ preferences.

At Sushi Daizen, Mr. Mamoru Daizen is the 3rd generation-Taisho. Mr. Yoshiyasu Daizen, is the younger 4th generation Taisho.

Blue-backed fishes are generally very sensitive to the environment and can deteriorate quickly. Daizen’s strength lies in their Taishos being very close to the fish market, both geographically and from a relationship standpoint. Saba fish changes its flavour and can be very nuanced depending on where and how it grew.

Blue-backed fishes, especially saba fish is Daizen’s key differentiation. This is the reason why Sushi Daizen can delight its customers consistently over time.

“A corollary in venture capital, is that one observes performance persistence – the financial returns from top tier VC firms significantly outperform the rest of their cohort. The concept of average is not meaningful in venture capital due to power-law dynamics - where winners take most.

The top 10 startups typically account for most of the aggregate exit valuations for any vintage. This is why we must only settle for the best. Not the average and certainly not the rest,” he quipped.

“So how can VCs consistently achieve high performance?” Yui asks.

“Yui, Takaki, there are similarities in outstanding omakase and VC investing which I have gleaned over the course of my professional career, ” he says, progressing to elaborate on these points.

In order to enjoy the finest omakase, our LPs need to have access to the 6Ps:

• Producer (i.e. Taisho)
• People (i.e. fishermen/farmers)
• Place (i.e. origin/locality)
• Produce (e.g. saba/tuna)
• Provenance (i.e. the story)
• Phase (i.e. which stage) when harvesting the produce behind the sushi

**Producer.** As Taisho for VMF II, Vertex serves our LPs the very best “deals or dishes” from the more than 200 active portfolio companies around the world.

People. This is where proximal relationships with the fisherman and farmers are critically important in sourcing the finest produce, anywhere in the world. As seafood fluctuates in quantity and quality depending on the season, Taishos need to have broad and deep sourcing networks of local experts familiar with the type, availability and conditions of the specific catch or harvest.

As natives of the land and sea, they need to have intimate, first-hand knowledge about that season’s catch. At Vertex, we adopt a similar approach as the Taisho - a network of funds managed by General Partners (GP) who are natives to their ecosystems with significant experience and expertise in their specific technology domains.

Place. Vertex Ventures invests in early-stage IT startups in SEA, India, Israel, US, and China. Each of these innovation ecosystems are unique in the types of startups observed - given their macro environments, demographics, national policies etc.

For instance, China with its burgeoning middle class, national focus on AI and R&D prowess produces a significant number of leading startups in the areas of AI (e.g. Geek+, Horizon Robotics), deep tech (e.g. Solid Energy) and consumer (e.g. Neiwai). Similarly, Israel has its unique military-innovation ecosystem that has propagated many outstanding startups in cybersecurity (e.g. Cymulate, Cylus), automotive (e.g. Fleetonomy, Innoviz), enterprise (e.g. Kryon, Spot).

Produce. This approach enables the sourcing of some of the finest start-ups from different geographies or domains. For instance in SEA, Vertex Ventures SEA & India was the first institutional investor in Grab - the ride hailing app that has become a leading internet platform services company, offering everything from on-demand transport to meal delivery to mobile payments and financial services.

The investment in Grab has led to a transformation of SEA's public transport industry. It is also SEA’s first and most valuable decacorn at USD 14 billion to date, counting many leading Japanese institutional investors including Softbank, Toyota, Yamaha, more recently MUFG and TIS as well.

Vertex Ventures HC invests in leading global healthcare startups in the areas of MedTech and Biotech. For instance, Visterra is clinical stage biotechnology company committed to developing innovative antibody-based therapies for the treatment of patients with kidney diseases and other hard-to-treat diseases. The company was acquired by Otsuka Pharmaceutical in 2018.

Phase. Just as some dishes are best consumed young and fresh, others are better served when ripe. This is also true for startups – some are interesting early-stage opportunities, while there are also others where it makes sense to invest at the later/growth stages.

Vertex Growth is our network fund focused on investments in global, growth stage portfolio companies from our early-stage Vertex healthcare and IT funds. A case in point is Cymulate – a leading SaaS-based Breach and Attack Simulation (BAS) platform from Israel. The company has built an impressive customer roster around the world and is growing rapidly given [1] the comprehensiveness of its threat library, [2] sophistication and realism of the attack simulations, [3] ease of implementation and [4] actionable reporting. Recently, it also won two prestigious industry awards in recognition of their transformative approach to security testing.

Unlike most growth stage companies, our Vertex Growth Fund has access to some of the most compelling, promising startups handpicked by our early stage funds that are ready to significantly scale – an “unfair advantage” that allows Vertex to serve the best investment opportunities to our LPs while helping promising growth stage Vertex portfolio companies succeed.

Provenance. As the final step of the omakase experience, the Taisho tops it off by providing a story to each dish – where the ingredients came from and how it was prepared to reach the customer’s plate. This allows the customer to immerse themselves in the experience itself, but also enables the Taisho to understand the tastes of their customers through the interaction so that they can iteratively tailor the menu for the customer.

“At Vertex, we pride ourselves in value creation beyond capital. Not only does Vertex provide our LPs with some of the best investment opportunities in our portfolio. We are also able to share the story of each start-up, their investment thesis and expected return potential. As VMF II LPs, they also enjoy the diversification by geography, across the IT and healthcare technology domains, as well as early and growth stages.

This enables Vertex as a whole to achieve both breadth and depth as an integrated venture capital platform, with access to a global network of local specialists that invest in the most disruptive and positively, transformational startups in each domain, region and investment stage, very much like how the Taisho secures the finest fish and ingredients available for every dish, for every season. Kanpei!”, he concludes, raising a toast.