Fund focus: Openspace begins growth story

Openspace Ventures celebrated the final close of its debut fund in 2015 by feasting on McDonald’s and champagne. It was a practical solution for what was then a small and sparsely resourced outfit.

Shane Chesson, one of the co-founders, had to catch a flight so the rest of the team followed him to the airport, where the only restaurant open was McDonald’s. Fortunately, someone brought along a bottle of champagne, so there was no need to toast the firm’s success with Coca-Cola. Every fund close since then has been marked by the team sharing in the same food and beverage options.

“There is a symbolism to it as well. We celebrate the wins we’ve worked hard for, but we have humility about what we are doing and recognise there is much still to be done,” said Jessica Huang Pouleur (pictured), a partner at Openspace. She noted that the photos of French fries and Cristal that she recently posted on LinkedIn drew more comments than the accompanying fund close announcement.

The GP was celebrating the USD 200m final close of OSV+, its debut growth-stage fund. The vehicle drew commitments from LPs in Openspace’s core early-stage strategy – Fund III closed last year on USD 200m – as well as new investors. They include the US Development Finance Corporation, an Australian superannuation fund, a European insurer, and family offices from around the world.

OSV+ primarily participates in follow-on rounds for existing portfolio companies, entering at the Series C and D stages, while the core VC funds concentrate on Series A and B rounds. Openspace chose to raise separate funds - rather than bundle everything into a larger single vehicle - because the risk profiles are different. This also led to the recruitment of Pouleur to run the OSV+ strategy.

“For early-stage companies, the addressable market is a big consideration, as well as whether the business model is unique enough for that addressable market and whether there is high conviction that the founder can execute. Essentially, can companies become big?” said Pouleur, who previously made later-stage investments at Providence Equity Partners and The Walt Disney Company.

“By the growth stage, exit is a critical component of the evaluation. Has this company scaled? What is its market position? How defendable is that position? How do you continue to grow and accelerate? And how do you get out? There are more tangible discussions on exit options.”

The big six

Over half the OSV+ corpus is already committed: companies have either received funding or capital has been reserved for re-ups on the achievement of certain performance milestones.

There have been six investments to date: remote patient monitoring business Biofourmis; Indonesian mobile healthcare start-up Halodoc; FinAccel, operator of Indonesian buy now, pay later platform Kredivo; Philippines live-streaming business Kumu; and food and beverage start-up Jiwa Group; and Indonesian micro-savings and micro-investment app Pluang.

Investee companies must meet qualification criteria in terms of minimum pre-money valuation and annualised revenue, market-leading position and product-market fit, established management teams, clear growth trajectories, and positive unit economics or a pathway to profitability.

Moreover, OSV+ cannot lead rounds for companies it has backed through its VC funds because, to avoid conflicts of interest, valuation benchmarking must be led by third parties. For example, Biofourmis is poised to close its Series D with General Atlantic taking the lead and OSV+ merely re-upping. SoftBank Vision Fund 2 performed this role in the USD 100m Series C in 2020.

The venture capital firm does advise portfolio companies as to which investors might be best suited to lead follow-on rounds. For Biofourmis, which was founded in Singapore but has since expanded globally, a key consideration was a realistic ambition to list in the US.

“Other companies aspire to list in the US, but if you think about it from a practical standpoint, it is difficult if the business model or market is not well understood by US investors,” said Pouleur.

“Biofourmis has revenue and customers in the US, so a US IPO makes sense. And then the ability to bring in an investor with deep experience in the US market, in terms of business development and helping with the IPO story is critical. Vision Fund and General Atlantic are great investors for them.”

Liquidity options

FinAccel was poised for a liquidity event during the fundraising process, following an agreement last August to merge with a US-listed special purpose acquisition company (SPAC) at a valuation of USD 2.5bn. The deal was abandoned earlier this year amid deteriorating sentiment for SPACs. Post-merger redemption rates are at all-time highs while most companies trade below their offering prices.

Pouleur supported the decision, noting that the SPAC sponsor, Victory Park Capital, continues to support FinAccel. The plan is to pursue a traditional IPO next year.

“SPACs were hot because it was a low interest rate environment and there was a lot of liquidity in the market. They won’t go away, but the craziness will ease compared to 2020 and 2021,” she added.

“We will see more traditional IPOs because there are more comps for Southeast Asia companies – in the US and locally, with the IPOs of GoTo and Bukalapak. There have also been changes in the listing requirements to encourage high growth but not yet profitable companies to go public.”

GoTo and Bukalapak listed in Indonesia, but Pouleur sees Thailand and Australia as viable listing destinations in the region, citing a liquid retail market and an affinity for software-as-a-service companies, respectively. Singapore has established various incentive programs to attract more listings. Even the Tokyo bourse has reached out to Openspace about IPOs.

At the same time, OSV+ is deploying capital in an increasingly uncertain environment, with the prospect of down rounds looming large over Asia. Pouleur is bullish about the prospects, citing moderation in valuation expectations, companies delaying IPOs and raising extra growth rounds, and a likely wave of consolidation in Southeast Asia’s start-up ecosystem.

“There is going to be a different style of investment this year. A lot of businesses that raised capital in the last two years focused on achieving scale rather than profitability. When it becomes harder to raise capital in the earlier stages and competition remains fierce, we will see consolidation,” she said.

“It’s not so much big guys buying small guys – though there will be vertical and horizontal consolidation – but M&A in the smaller space. And that will create investment opportunities.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Fundraising
• Venture
• Technology
• GPs
• IPO
• Openspace Ventures
• TMT