Japanese giant's stake seen as vote of confidence in Techpacific

Japanese Internet holding company Softbank Corp has taken a 5 per cent stake in Hong Kong-based Internet financing firm Techpacific.com.

The co-founder of Techpacific, Ilyas Khan, declined to say how much Softbank paid for the stake, but observers say the investment is a vote of confidence in the fledgling firm, started in January by a team of former investment bankers.

The company raises funds for young Internet startup companies and often takes direct-equity stakes in the startups through a fund of its own. Mr Khan said Techpacific had raised money for 15 companies and held stakes in all of them.

Softbank is acting as an adviser to the startup companies that Techpacific works with. It will use Techpacific's stable of 15 client companies as one source of potential early-stage investments.

Softbank holds stakes in more than 120 Internet companies throughout the world. In August, it created Softbank China Venture Investments in Hong Kong, a mainland-focused Internet venture capital fund. The fund's first investee is Techpacific.

'We don't want to miss any opportunities in Far East Asia,' said Junichi Goto, director of Softbank subsidiary Soft Trend Capital.

Mr Goto said Softbank, which has unrealised Internet stock gains of more than three trillion yen (about of HK$221.1 billion), had committed to invest hundreds of millions of US dollars in Hong Kong and Greater China and planned to raise more funds in the region by the second quarter of next year.

Mr Goto said that alliances with firms such as Techpacific were necessary now that Internet startups were receiving outside funding at earlier stages of development.

Apart from Mr Khan, Techpacific's team of 16 includes former investment banker Johnny Chan and former securities regulator Robert Owen.

The firm receives more than 150 proposals a month through its Web site and takes equity stakes and options equivalent to up to 10 per cent in the startups, in addition to up-front fees.

While the fees pay operating costs, Techpacific is hoping to earn most of its profit on the equity and options it has in firms it takes to an initial public offering or buyout.

'We want to be a mini, mini, mini Softbank in a couple years' time,' Mr Chan said.

Companies in the Techpacific portfolio include mainland portal Netease, Arabic language portal planetarabia and an on-line broker in Korea.

There were still 'quite a lot [of companies] in the pipeline,' according to Mr Owen, the firm's non-executive chairman and a former colleague of Mr Goto's when both were at Nomura Securities in Hong Kong.

About a dozen of those firms were considered by Techpacific to be 'incubatees', according to Mr Khan, usually companies in which the firm became involved at the concept stage.

A handful of the incubatee companies are housed in the firm's offices at The Center in Queen's Road Central. But Techpacific officials said they would rather be seen as an investment bank focused on technology and the Internet, with a portfolio of businesses that happen to include technology incubation.

The Softbank name could give Techpacific extra credibility and an edge in drawing Internet startups. The competition for early-stage Internet deals in Asia has heated up, with the entrance of venture-capital funds from corporations such as computer magazine publisher IDG, computer maker Acer, chipmaker Intel, Pacific Century Cyberworks and investment banks.

Mr Owen downplayed competition with investment banks, saying their private equity arms were more likely to leave Techpacific the promising deals they were too big to invest in.

INTERNET