Fund focus: Insignia takes two months to scale up

More than 100,000 potential entrepreneurs made their way from China’s Greater Bay Area to Singapore over the past year, according to government statistics. This has contributed to rapidly rising property rental prices, but Insignia Venture Partners believes these individuals could play a key role in the evolution of the local technology ecosystem.

Yinglan Tan (pictured), founding managing partner of the firm – which recently closed its third Southeast Asia fund on USD 516m – sees a unique opportunity to meld Chinese-style business model-based innovation with the hard technology smarts that originated in the US and spread globally.

“The next S-curve that we see is in Southeast Asia, where you can combine business model innovation that addresses large markets with tech innovation enablers,” he said. “I think that could become a very interesting combination. I do believe it will be a golden age for Southeast Asia over the next 10 years, even with the backdrop of global inflation and US-China tensions.”

Early and growth-stage investment in Southeast Asia’s technology sector reached USD 16.5bn in 2021, up 3x on the previous year, according to AVCJ Research. For early-stage activity alone, an average of USD 3.5b was deployed per year in 2017-2021, up from USD 1bn for the five years before that. Annual average deal flow more than doubled between the two periods.

Across e-commerce, social networking, streaming, gaming, and travel, plenty of start-ups in Southeast Asia have raised capital for business models inspired by developments in China. Some are almost direct transplants from China.

Tan, however, is no advocate of copycatting. Rather than apply a solution to a local problem, entrepreneurs should first understand the local need and then adapt the solution accordingly. From Indonesia to Vietnam to the Philippines, there can be great variety in culture, language, business norms, even payment systems. Start-ups must be ASEAN-first and organic in their approach.

“The more interesting companies that we’re seeing are new species. It is about finding an ASEAN-first problem and then finding solutions around it,” Tan said. “Something like supply chain software is complex and unsexy, but it is generally high gross margin and targets a large addressable market. And localisation challenges represent a wide moat to even the most well-resourced global leader.”

He cites Fishlog as an example. The Indonesian start-up provides end-to-end software for fish farmers, but behind this plain vanilla exterior there are market dynamics that translate into robust margins: Muslims, which make up 90% of Indonesia’s population, cannot eat pork, so fish is a popular alternative source of protein; and the country is an archipelago, so logistics are complex.

Within limits

Insignia is benefiting from a general upswing in Southeast Asia VC fundraising. The firm, which Tan founded after spending five years as a venture partner at Sequoia Capital India, raised USD 120m for its debut fund in 2018 and USD 200m for a second vehicle the following year.

The Fund III vintage includes a core venture vehicle of USD 388m, an accompanying entrepreneurs’ pool of USD 28m, and a USD 100m annex fund. Despite the larger size and assorted Asia-wide fundraising pressures, it was still oversubscribed. The final close happened at the end of July, around two months after launch.

“A lot of investors registered their interest early, so when we started fundraising, we just called them and allocated certain amounts. We are still getting calls about the fund, so we just have to say, ‘Sorry, it’s done,’” Tan noted. “We only took half of what investors subscribed, but we wanted to be disciplined. Being small and tight leads to better performance.”

Insignia claims to have deployed USD 304.9m to date with a loss ratio of less than 2%. Portfolio companies have attracted USD 7.7bn in follow-on funding.

The entrepreneurs’ fund is mainly for the founders of technology unicorns and their family offices, giving them the opportunity to invest alongside the institutional LPs that dominate the main fund. It is essentially an alignment of interest tool because Insignia relies on the networks, operational expertise, and other resources of these founders in deal sourcing and portfolio management.

A recent survey conducted by the firm found that 94% of founders backed by Insignia would be willing to invest in its funds and encourage friends to do the same.

The annex fund will make top-up investments in Fund I portfolio companies, mainly those with truly global businesses and the potential to reach USD10 bn in valuation. Tan pointed to payments platform Flip, social commerce business Super, digital bank Tonik, investment app Ajaib, and fintech outfit Payfazz as likely candidates.

Web3, climate tech, healthcare, and agriculture have been identified as areas where there should be more activity in Fund III. Tan, however, didn’t want to get drawn into such a conversation.

“We have some analysis, some assumptions that certain sectors will be interesting given market trends, but we're not that good at predicting the future,” he said. “We’re good at finding entrepreneurs and they tell us where the future is, where to build the next big company.”

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