Fund focus: Asia Partners eyes Southeast Asia's white space

Asia Partners' debut fund has provided some of the most convincing evidence to date that the Southeast Asia growth thesis has gone global. More than 150 LPs from six continents piled in, leading to what is being called – at $384 million – the largest-ever first-time technology fund for the region.

“Our LPs are universally very thematic in their asset allocation,” says Nick Nash (pictured), a co-founder and managing partner at the GP.

“They recognize a fundamental truth that the best returns come from investing in parts of the world that are experiencing sustainable and rapid economic growth, where you can find honest entrepreneurs building great businesses, and where there’s scarcity of capital. Any two of those are necessary but not sufficient – all three together is a potent combination.”

Consistent with other investors in the region, Asia Partners will focus on consumer internet models targeting increasingly wired middle-class lifestyles. It claims key differentiations, however, in its cultural sensibilities – its six co-founders represent six nationalities – and a preference for Series C and D-stage rounds with equity checks of $20-50 million.

Nash sees growth-stage VC as a global gap created at least in part by a less intuitive risk-reward equation. The thinking is that checks in the $1-20 million range are not large enough to create too much investor trepidation, while checks of $100 million-plus imply an imminent exit and payday. In between is not a popular place to be.

“There is a unique degree of conviction required to write a $30-40 million check,” he says. “Behavioral economics tilts people subtly away from growth equity, but the data tell a different story.”

Asia Partners’ homework on the subject includes a dive into 30 years’ worth of net IRRs reported by LPs in Chinese VC funds. The big reveal: growth equity outperformed early and late stage in terms of absolute returns, including when absolute returns were expressed as net of fees and carry and divided by volatility.

“You’d have high-teen net IRRs for early VC but extremely high standard deviations on a fund-by-fund basis,” Nash says.

“That augers well for those who pick the right start-ups, but even then, on a portfolio basis, the Sharpe ratios were still actually lower than they were for growth equity. Southeast Asia might not follow exactly the same pattern as China, but there’s enough data to suggest something very compelling is happening.”

Asia Partners estimates there is an approximately $1.1 billion growth funding gap in Southeast Asia annually. This is believed to be keeping valuations in check and generally preventing the market from overheating.

“Fewer companies pursue the traditional go-big-or-go-home strategy than you might expect relative to China or Silicon Valley,” Nash says. “You tend to find more stable industry configurations in Southeast Asia, and that’s actually beneficial to the entrepreneurs and the sustainability of their models.”

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• Topics
• Southeast Asia
• Venture
• Technology
• Fundraising
• GPs
• Asia Partners
• TMT