GCV Powerlist 2018: #7 Larry Illg

Bob van Dijk, CEO of South Africa-based media and internet group Naspers, said: “Naspers looks to invest in entrepreneurs around the world that are building leading businesses addressing big societal needs. Naspers Ventures, led by Larry [Illg], has invested in several new segments for us doing just that. The new areas of investment include education, food, health and agriculture, and continued investments in some of these segments will help to build the future of Naspers.”

Naspers’ approach to investing in developed markets changed in late 2015 from avoidance – after some middling deals in Europe in the 1990s – to active investments in the US.

Bloomberg reported Naspers invested $100m in Letgo, a US-based mobile classified advertising application, in September 2015, following up with a $175m in January last year.

Naspers CEO Bob van Dijk said at the time: “We will probably have more focus on the San Francisco Bay area than we have had previously. If we see the right opportunities we could see ourselves put a good amount of capital there.”

This led to the opening of Naspers Ventures in San Francisco in May last year under Larry Illg, a former eBay online auction company executive. Illg joined Naspers in 2013 from real estate listings platform Trulia, where he was general manager of new ventures. He was chief operating officer (COO) of Naspers’ e-commerce assets prior to taking the reins at Naspers Ventures.

Naspers Ventures is where the majority, 14 worth an aggregate $1.5bn in round totals, of the investing has happened but not all. Charles Searle, who is responsible for managing Naspers’ listed assets, including Tencent and Mail.ru, had an active year, too.

In March, Naspers sold HK$76.95bn ($9.8bn) of shares in Tencent, the China-based internet group in which it invested $32m in 2001.

Tencent operates a large-scale online services offering centred on its messaging app, WeChat, which has more than one billion users. As of the fourth quarter of 2017 it was the fifth most valuable company in the world, and it has a market capitalisation of about $505bn at time of agreed sale.

Naspers acquired a 46.5% share of Tencent through its $32m investment, which took place three years before its initial public offering in Hong Kong, and currently holds 33.2% having not sold any shares previously.

The company sold 190 million shares, equating to a 2% stake in Tencent, at HK$405 each. Naspers pledged in a statement not to sell any more shares for a further three years.

The proceeds from the sale will be used to shore up Naspers’ balance sheet and fund an investment drive intended to boost its holdings in other sectors. Naspers Ventures invested in four main sectors last year, food, education, mobile and consumer entertainment.

Outside the US, Naspers Ventures has expanded by opening offices in Singapore and India. Ashutosh Sharma has been recruited from venture capital firm Norwest Venture Partners to head the new office and will lead Naspers’ VC and M&A deals in India. Sharma was a vice-president for Norwest in India, having previously been an investment manager at Qualcomm Ventures, the corporate venturing arm of mobile chipmaker Qualcomm, between 2010 and 2012.

Although none of its other investments have garnered the same return as Tencent, Naspers invested in Mail.ru, the Russia-based internet company with a $6.6bn market cap today, in 2007, and owns notable stakes in India-based e-commerce firm Flipkart, which has agreed a majority sale at about $20bn valuation to US peer Walmart this month.

Naspers is expected to retain a chunk of its near-15% Flipkart holding worth up to $3bn, which was one of GCV Rising Stars 2018 award winner Russell Dreisenstock’s greatest successes after a $71m investment. For his profile he cited the low valuation at Naspers first entry and the “exceptional” returns it has produced.

And Dreisenstock had had good reason to be pleased with its success. “When looking at technology hotspots outside the US, it is difficult to see past India. Home to 1.3 billion people and the world’s seventh largest economy, India is also the birthplace of an outsize influence in Silicon Valley, due to a large diaspora of talent spread across both startups and established technology companies – look no further than the top executives of two of the world’s top five most valuable companies, Satya Nadella at Microsoft and Sundar Pichai at Google,” wrote Dreisenstock in an article for Entrepreneur.com in September 2017.

In his Entrepreneur article, Dreisenstock cites the characteristics present in Indian culture that have a positive influence on the country’s startups. They are: bargaining and negotiating, respect for experience, community and jugaad – an Indian concept that he defines as “the most innovative, economical and quality method to accomplish the desired task by unusual or imaginative means and ways”.

It is no surprise then to discover that Naspers Ventures has been particularly focused on India. Others were $250m for Ibibo Group, which owns and operates bus ticketing platform redBus.in and hotel booking site Goibibo.com, and providing $60m of an $80m series E round for online food ordering platform Swiggy.

However, India is by no means the only part of the world Naspers is interested in. Food delivery platforms around the globe appear to be one of the areas beyond media and e-commerce that firm is keen to move into, having invested approximately $1.2bn in such companies in 2017.

Germany-based Delivery Hero received the majority of that money, approximately $1.1bn. Naspers first provided $423m in May before investing further at its initial public offering and afterwards, buying secondary shares from e-commerce group Rocket Internet. Dreisenstock said Naspers has already seen 1.5-times return in just a few months and it planned to stay in the company for the long term.

Alongside food, one of the new verticals targeted by Naspers Ventures education. The initial deals under Illg and Dreisenstock targeted Codecademy, which is “teaching the world to code”, Udemy, a learning and teaching marketplace, and Brainly, the world’s largest social learning network with 70 million-plus users.

According to Dreisenstock, one of the reasons Naspers has been so successful is that the firm’s philosophy is to invest for the long term and this allows him and others to structure deals that are founder-friendly and offer operational support. He said this was what corporate venture capitalists needed to do to be more competitive against traditional VCs.

“They should also continue to nurture the startups and let them act on their vision without immediately imposing a corporate way of doing things or harnessing them to do just what the corporate ambition may be,” he said.