Fund focus: Openspace says it with distributions

For all the excitement about venture capital in Southeast Asia, the region’s still nascent start-up ecosystem has yet to prove itself in terms of exits. Sea remains the only company to make its mark in a big way on the US public markets, while trade sales tend to be relatively small and intermittent.

Industry participants believe a step-change is imminent, pointing to the number of special purpose acquisition companies (SPACs) searching for merger targets among the region’s IPO-ready unicorns and growing interest from global strategic investors in mid-market businesses. But Openspace Ventures appears to have stolen a march on the market. The firm has returned close to the entire corpus of its 2014 vintage debut fund, with two full and several partial exits.

“We have DPI [distributions to paid-in] of 1x on Fund I and we are still sitting on Gojek, FinAccel, Halodoc, and a whole bunch of other interesting businesses that are starting to hit their prime,” says Shane Chesson, co-founder and a partner at Openspace.

The firm had generated proceeds of $73 million on its $90 million debut fund as of February 2020, according to Preqin and Venture Cap Insights. (Proceeds now stand at $87 million). The IRR was 35.3%. Placed alongside VC funds of a similar vintage managed by East Ventures, Alpha JWC Partners, Wavemaker Partners, Golden Gate Ventures, and Kejora Capital, East comes closest in terms of DPI ($16 million from a $28 million corpus) and Alpha JWC for IRR (30.4%).

Cambridge Associates ranked Fund I in the top quartile among venture funds of its vintage by DPI in the second quarter of last year. Fund II, which launched in 2017 and closed at $135 million, enjoys the same status based on total value to paid-in (TVPI).

Opportune timing

Against this backdrop – and under the shadow of COVID-19 – Openspace started marketing its third vehicle in early 2020. It reached a final close at the hard cap of $200 million at the end of last month.

LPs such as Temasek Holdings, Duke University, and San Diego City Employees Retirement System (SDCERS), which have backed Openspace since Fund I, all re-upped. Other investors include fund-of-funds StepStone Group and 57 Stars, European development finance institutions DEG and Norfund, Japan’s Mizuho Financial Group, and Sofina, a listed European family-owned investment firm.

Several relatively recent family office arrivals in Singapore – from China and Europe – also took part, giving credence to the city-state’s reputation as a safe harbor. “It was easier to shake hands with some of these people because they had already moved their family offices,” Chesson says.

Openspace’s two full exits came through an Australia IPO, and subsequent sell-down, of cloud services start-up Whispir and a trade sale of online inventory and order management platform TradeGecko. Together, they account for just under half of the $87 million. The rest comes from partial exits from Gojek, the Indonesia ride-hailing and local services behemoth now valued at approximately $10 billion. Openspace was the sole institutional investor in the Series A in 2014.

These partial exits are made to a tight group of investors – typically LPs – rather than through marketplaces or brokers, which helps assuage any concerns at the portfolio company level about information disclosure. AVCJ understands that in at least one instance, Openspace transferred the economic interest to a third party while retaining the voting rights. These are exercised alongside the rights of the larger position still held by the fund.

Chesson declines to comment on the specifics, but he notes that these solutions usually only work with larger companies. “It takes profile and size for LP-type investors to get interested,” he says.

A hot market

Openspace made four new investments in 2020, while existing portfolio companies raised $2 billion in follow-on funding. Total follow-on funding to date across is $6.5 billion. Chesson expects 2021 to be a busy year for Southeast Asia’s tech sector as companies continue to scale at speed. Rumors of IPOs abound – including a listing for Gojek, perhaps on the heels of a merger with Tokopedia – while SPACs are aggressively presented as an alternative route to market.

“I am worried the SPACs will get desperate for deals and companies will end up on the market that are not truly ready. Only a handful of companies are ready to IPO in next 12-18 months,” says Chesson. “We have companies raising Series C rounds and I think it will be two years before they are ready. In the US, some companies have taken their time, which has led to some great IPOs late in the cycle like Roblox [an online gaming business with a market capitalization of $39 billion].”

Openspace is raising a growth-stage fund that will primarily participate in follow-on rounds for standout portfolio companies, but the strategy for the VC fund remains the same. It will make Series A and B investments in companies with B2C and B2B technologies. Financial services, agriculture, education, healthcare, energy, logistics and software-as-a-service (SaaS) are all of interest.

The firm has expanded its footprint significantly in recent years and now has 25 people located in Singapore, Bangkok, Jakarta and Manila, with Ho Chi Minh City to follow. Openspace claims to be larger than any of its peers by number of offices and trails only East in terms of headcount.

Operations experts have been recruited as well as investment professionals, a reflection of increased competition for deals in Southeast Asia and rising expectations on the part of entrepreneurs. Chesson observes that the tech operations team is already working flat out and could feasibly double in size this year.

“We do 100-day plans after we invest – helping get the right architecture in place and the right hiring pipeline for data scientists and working on the first few versions of the model,” he says. “Companies have to develop their own capabilities, so we become less hands-on with time. It is a good differentiator in the minds of entrepreneurs and in the minds of LPs.”

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• Topics
• Southeast Asia
• Venture
• Technology
• Fundraising
• GPs
• LPs
• Performance
• Exits
• Openspace Ventures
• TMT