Changes in society have venture capitalists on high alert AGROUND-BREAKING STUDY recently published by a Canadian economics research team has drawn a direct link between human capital and economic growth. The study is regarded as a breakthrough not so much for its conclusion - that you need skilled people to grow an economy - but the fact that it has managed to prove statistically that this is the case. Among the key findings of the study, perhaps the two most poignant are these: an investment in human capital is three times as important to economic growth in the long run as an investment in physical capital; and a 1 per cent increase in average skill can expect to yield a permanent 1.5 per cent increase in GDP per capita. None of this will make a venture capitalist bat an eyelid. Be it a neophyte in search of fledgling hi-tech enterprises or a management buyout expert who prefers bricks-and-mortar businesses, all venture capitalists know how vital human capital is to the success of their investments. After all, without talented and ambitious people, where would their opportunities come from, and who would keep their investment ventures on a profitable track? In the fledgling venture capital market of Asia, the pursuit of quality management has turned venture capitalists into keen students of society. One social phenomenon they have been watching is how Asians have been venturing overseas to study and returning with good qualifications, knowledge of western corporate best practices, and entrepreneurial ambitions. 'We want to back smart, ambitious people who can take the company to exit. And we can see such people coming back one by one,' said Hanson Cheah, managing partner of AsiaTech Ventures and chairman of the Hong Kong Venture Capital and Private Equity Association. 'It is happening in India and China, and it has been happening in Taiwan for many years. These are people who have gone to the United States or Europe and obtained a very good education, worked for, say, a couple of years in a multinational company, and then decided to come back.' Mr Cheah points out that the dotcom meltdown in 2000 helped channel brainpower back into Asia: 'A lot people couldn't stay in the US [after the dotcom bubble burst]. Their companies went bust and they lost their working visas, so they had to return to their home countries. '[AsiaTech Ventures] backed a microchip design company, Shanghai Xinhua Microelectronic, which was run completely by returnees all from one company, Texas Instruments. These guys said, 'Why don't we go back to China and start the business there at one tenth of the cost?'' Another trend that venture capitalists are heeding is the breakdown of traditional working values in Japan, which is leading to an increase in the available talent pool they can draw from. 'Things are changing. There was a time when we would never think of going to a company like Toshiba or Sharp to find a manager. People would think a manager was crazy for giving up on a 25-year pension or assume that he'd been forced out by bosses. But the concept of lifetime employment is fading. It has already disappeared in Korea and it's slowly breaking down in Japan,' Mr Cheah said. In Korea, compulsory military service could also curiously speed up the flow of talent and brains into start-up ventures, thanks to a new government policy, Mr Cheah said. The Korean government is granting military service exemption licences to employees of select start-up ventures. This is expected to attract young talented men who fear the mortal danger that military service in Korea holds. As an added bonus for the company, employees who accept exemption from military service are locked into a mandatory five-year contract.
