As the venture capital (VC) market continues to grow, Thai start-ups are a natural focus for VC firms interested in Southeast Asian investment. Start-ups making use of new technology have a need for initial capital, are interested in disrupting existing markets, and offer potentially large equity returns on investment – a perfect asset for the investment portfolio of many VCs, which have the available capital to seed new ventures and bet on the next new thing, rather than financing existing and well-seasoned companies.
This perfect asset is not always a perfect fit, however, due to several quirks of the Thai legal system. As you will see, Thai law does not recognize the full spectrum of equity and debt relationships that exist in other legal systems such as Singapore, Europe, or the US. The outlier status of Thailand in this regard necessitates an alternative approach, which fortunately includes positive knock-on effects.
The standard business model of a VC firm involves financing a number of new companies with the hope of realizing significant gains from enough of them to be profitable. VCs are in the business of providing financing at an early stage, and then letting their companies innovate, experiment and expand. And while VCs have to be great at spotting the companies that will become successful, they don’t need to, or even particularly want to, take an active role in managing their companies. Venture capitalists want new companies that think differently and create new products or services; they don’t want to squelch that creativity – they want to harness it.
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JASON CORBETT is the managing partner at Silk Legal in Bangkok.
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