Fund focus: Integra focuses on the fintech layer

Financial technology represents different opportunities for different investors. For Southeast Asia-focused Integra Partners, it is a way of tapping into the growth generated across a range of industries, from e-commerce to logistics to healthcare and even to climate.

“Our thesis is that fintech has become a horizontal layer. It powers many other verticals, through payments infrastructure, credit risk management, or underwriting capabilities. For example, Grass, which is the largest position of our second fund, is seen as an e-commerce company, but for us, the core value driver comes from financial services,” said Jinesh Patel, a managing partner at Integra.

The fintech investment landscape is to some extent dictated by the maturity of the geography in which it sits. In China, when regulators recognised that Alibaba Group and Tencent Holdings had achieved a near monopoly over an ecosystem that leads the world in areas like real-time payments and digital lending, they prioritised risk control. Southeast Asia doesn’t have much of an ecosystem.

“Some of the basic infrastructure that you take for granted in China does not exist in Southeast Asia, so financial inclusion and affordability become key themes,” said Patel. He cited studies that have found 60% of Southeast Asia’s population – or 400m people – is unbanked and health insurance penetration in the region is half that of Africa.

These statistics contributed to a fundraising effort that recently culminated in Integra closing its second vehicle on USD 90m. The launch came in 2021, less than 12 months after the firm spun out from Dymon Asia Capital. A first close was completed relatively quickly, but the pandemic slowed progress thereafter.

Development finance institutions are well-represented in the LP base, with Germany’s DEG, the US Development Finance Corporation (DFC), and Norway’s Norfund all making commitments. France-headquartered asset manager Tikehau Capital also took part, making its Southeast Asia VC debut.

Integra’s first fund – which closed on USD 50m in 2018 when the firm was still known as Dymon Asia Ventures – primarily focused on conventional fintech players. For Fund II, Integra used digital health as a test case for the horizontal layer thesis, but it sees similar opportunities everywhere.

In the climate space, for example, financial incentives might be used to encourage companies to pursue decarbonisation projects or crop insurance could be sold to farmers and agricultural aggregators, of whom nine in 10 do not have any downside protection.

Integra believes that its strategic positioning is a point of differentiation in Southeast Asia: in a market dominated by Indonesia-focused generalists, it is the pan-regional sector specialist. Data tracking and software solutions are used to assess deals across multiple jurisdictions to identify the stand-outs.

“The Philippines market is the most interesting, in terms of value and in terms of quality of founders and execution. Today, Indonesian companies typically trade at a 3x-5x premium to their Philippines-based peers. We're still interested in Indonesia, but we are disciplined around how much we want to risk through exposure to that market,” said Patel.

Fund II has made eight investments to date, including Graas, an e-commerce software provider that targets Southeast Asia and India, and earned wage access platforms Wagely and Gimo, which operate in Indonesia and Bangladesh and Vietnam, respectively. Most recently, the firm re-upped in a USD 10.7m Series B for Philippines-based human resources and payroll management software provider Sprout Solutions.

Integra plans to back up to 20 start-ups out of Fund II, participating in the pre-Series A to Series B stages with an average cheque size of USD 3m.

Patel argues that the valuation corrections experienced by listed technology stocks are healthy because it encourages GPs to exercise more discipline in their investments, specifically around pricing and product-market fit. This was difficult in the hyper-competitive environment of recent years with the likes of Tiger Global Management and SoftBank Vision Fund deploying capital swiftly and at scale.

“It’s a natural reset. The correction has led founders to modify their own valuation expectations. Previously, companies raised a lot of money and they spent it freely, without the product-market fit or unit economics of their business model,” he added.

“We’ve seen across the vintages in venture is that when you come through tough periods or massive corrections, that vintage tends to be the strongest performer. Uber and Airbnb are examples of that.”

As for exits, Integra expects the bulk of distributions to come when later-stage investors take out its positions, typically in Series D and E rounds. Almost all the cash generated so far from Fund I is through secondary share sales; the acquisition of cybersecurity player ReaQta by IBM in 2021 is one of few trade sales. Patel notes that Fund I ranks in the top 5% in its peer group by distributions to paid-in (DPI).

“There have been several successful listings in Southeast Asia, but you're not seeing the quantum and the quality that you see in the US or in China because we're still a very young ecosystem,” said Patel, “ If you look at the number of IPOs and public market exits over the last five years, they've not been significant.”

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• Topics
• Southeast Asia
• Financials
• Technology
• Fundraising
• GPs
• Venture
• Integra Partners
• Fintech
• Dymon Asia
• Fundraising