Fund focus: Southeast Asia piques Silicon Valley interest
Singapore’s Iterative is dazzling its entrepreneurial friends in the US with tales of seed-stage success in Southeast Asia and channelling that interest into a sophomore fund
Singapore-based accelerator and seed investor Iterative raised USD 10m for its debut fund in 2020, invested in 65 start-ups, and saw eight of them grow 50x or more. There was no money for follow-on rounds, so eight special purpose vehicles (SPVs) were raised from the LP base. Iterative was therefore able to help its shining stars keep shining, but it got none of the economics.
Fund II, which recently closed on USD 55m, aims to fix that. It will back around 100 companies, reserving half the corpus for follow-on rounds. Iterative’s venture partner network is expanding as well – there are currently 80 – which should help in terms of portfolio support. But in this model, a swarming ecosystem creates its own benefits.
“We think a high-volume, high-value-add-through-community strategy gives you higher returns for the money,” said Brian Ma (pictured), a co-founder and general partner at Iterative. “The founders are helping each other and asking each other questions on Slack all the time. How do you get this license? How do you work on this engineering problem? They’re all super engaged.”
Investors in Iterative’s funds are predominantly sourced from Ma’s Silicon Valley rolodex. He’s a serial entrepreneur and Y Combinator alumnus whose US-based property-tech start-up Divvy Homes has recently been valued at USD 2bn.
Fund II LPs include Andrew Chen, a general partner at Andreessen Horowitz, as well as founders and executives from Dropbox, Y Combinator, Foursquare, and Airbnb. US-based Cendana Capital and Village Global – both returnees from Fund I – as well as Goodwater Capital and K5 Global are among the institutional backers.
The new fund closed in about four weeks. Ma said Southeast Asia is trending to some extent in US VC circles, but most of the enthusiasm traces back to Fund I, which is sitting on a 6x total value to paid-in return and an IRR of 320%.
The portfolio is said to be worth USD 1.2bn thanks largely to the SPV-backed companies. They include financial technology provider Spenmo, which closed a USD 85m Series B round in January, and Propseller, a real estate start-up that got a USD 12m Series A in August. Home services player Sendhelper was acquired by real estate portal PropertyGuru in October.
About 10% of the new fund will be reserved for experimental plays outside the formal remit. An example from Fund I was GoZayaan, a Bangladeshi travel platform that has re-headquartered in Pakistan. GoZayaan was one of the SPV success stories, recently raising a USD 8m round. It has since inspired another two investments in Bangladesh.
Iterative will write bigger cheques this time, up to as much as USD 500,000. Investees get the entire sum upfront and then enter the accelerator, where they are connected with the founder ecosystem and coached.
There are 20-25 companies in each accelerator batch, which run twice yearly. The whole program is modelled on Y Combinator. All of it is done remotely although, in lockstep with Y Combinator’s latest policy shift, some in-person elements are now being introduced.
Ma said Iterative is unimpacted by the expansion of capital targeting Southeast Asia’s seed market, including the encroachment of later-stage players such as Sequoia Capital. He acknowledges that higher profile start-ups – projects from Ivy League graduates or former unicorn executives – are seeing increased competition. But he’s not playing in that space.
“We tend to back founders you wouldn’t think of as being amazing founders. They don’t have the profile,” he said. “They’re technical, but they’re generally just very hard workers and strategic. In most of our rounds, they’re ridiculously early. People are like, ‘Why are these guys backing them?”
The method of separating the wheat from the chaff in this lot mostly comes down the chemistry in the accelerator mentoring process, where founders are advised to experiment with market studies, surveys, product ideation, and trial-and-error business modelling.
“That’s our diligence process. The reason we named ourselves Iterative is because we think everything is done via experimentation. That’s how you find product-market fit in the early days,” Ma added.
“Most of the time, we’re not looking at traction or background. We literally just look at execution with these experiments. About 85% of people will just not do it, and that’s fine. We just don’t invest in those people. We end up backing the hustlers who execute.”
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