Incubating a business idea into a company fit for flotation has become big business in Europe and the United States, but Asia until recently has been off the radar for most of the leading practitioners of this kind of small-scale venture capitalism. Only a few local incubators and smaller foreign investors have been filling the gap. Until five years ago, the concept of incubation was the domain of universities and manufacturers, which spun off ideas developed in the labs into companies with the help of financial partners. The advent of the Internet and boom in technology stocks has created a new breed of financiers who are not interested in long-term investing nor dare to match the spending power of venture capitalists, but can spot a good idea and get a fledging business on to its feet quickly. For a prime stake in the company, incubators will invest very little money but provide the basic essentials as well as polishing up a business plan, offer expert management advice and make the crucial introductions to the venture capitalists to tap more substantial sources of financing. At this stage, they will usually retain a minor stake in the company in the hope it will be floated or see a management buyout. Some leading European incubators, such as Antfactory and Apax Partners Venture Holdings, have recently set up offices in Tokyo to test the Asian market. But for the most part, according to analysts, European and US incubators are tending to concentrate on their local markets, where there are still plenty of opportunities to develop. 'People who have thought about expanding to the Far East are finding financial capital so scarce, and many others just want to concentrate on developing the market in Europe,' said Hasnain Malik, Internet analyst at Schroders Salomon Smith Barney. The Asian gap is instead being filled by smaller incubators. London-listed Oxygen Holdings recently formed a joint venture with China's top tobacco firm Yunnan Hongta to create CyberChina, which will bring short to medium-term finance for existing businesses in China. Although Oxygen is considered small fry compared with other European incubators, it has some high-profile backers, including PR guru Matthew Freud and Elisabeth Murdoch, daughter of the News Corp supremo. It is also one of the first foreign-backed incubators in China, targeting investment opportunities in e-commerce and technology and offers to invest between GBP50,000 (about HK$546,950) and GBP1 million in new ventures. EnterpriseAsia (EPA) is another small incubator focusing on China and Asia. But as there are few China incubator specialists, EPA is inundated with ideas from entrepreneurs in the region. 'Out of the ideas given to us, only one in three is worth examining,' said EPA chief executive Benjamin Ng. Asian incubators are also emerging to answer demands from local entrepreneurs. Bangkok-based WebStudio-1 started out life hatching business-to-business and business-to-consumer Web sites for the US market but recently announced it was shifting attention to the Thai and pan-Asian markets. It has developed Xaap.com, a network of community-driven Web directories with sites in Thailand, Singapore, and China, and has plans to focus on providing Internet infrastructure to other companies and expanding into Japan and India. Hong Kong's iMerchants Ventures has developed an innovative local online raw materials exchange iSteelAsia.com and plans to launch other business-to-business exchanges. Leroy Kung Lin-yuen, chairman and chief executive of iMerchants, recently said his company had noticed a dramatic increase this year in the interest in the Internet in Asia. 'This is just the very beginning of e-commerce growth in Asia. We firmly believe that the best is yet to come in the world of e-commerce services and anticipate continued high revenue growth in the coming years.' Meanwhile, the Malaysian Government is promoting its information superhighway corridor venture and is attracting a lot of international interest. British Telecommunications and US chip giant Intel are among several multinationals setting up incubators in the new science park outside Kuala Lumpur. But as the trend takes hold in Asia, the rationale behind recent over-valuations of the potential these ventures hold is changing rapidly in Europe. Recent failures in several high profile Internet ventures such as the UK healthcare site ClickMango and e-tailer BOO have given dotcom incubating a bad name. Analysts say venture capitalists have become more cautious about lending to boom-bust Internet service providers, which spend most of their time trying to create demand for their services and when they crumble, the only tangible asset remaining is the customer database. 'There is certainly more diligence among venture capitalists in recent months,' noted one Internet analyst.
