Fund focus: 500 Global scales up in Southeast Asia

500 Global has completed five full exits from its debut Southeast Asia fund, which closed on USD 25m in 2013. All are trade sales. While many of the firm’s peers have cashed in positions through growth rounds that brought in later-stage investors at elevated valuations – conscious, perhaps, of the need to realise paper gains – 500 Global has always resisted.

“We want to swing for the fences. As a seed investor, we want one company to be very big and return 1x of the fund. If we exited in the Series B or C rounds, we would need to sell 10 positions to achieve 1x. And if we sold the wrong ones, like Carsome or Bukalpak, and left a lot of money on the table, we would be in trouble,” said Khailee Ng (pictured), a Southeast Asia-based managing partner at 500 Global.

This refusal to compromise, even as the first fund enters year 10, is reinforced by performance to date. Fund I made 114 investments. The second was Carousell, a C2C marketplace that achieved unicorn status two years ago. Two more unicorns – ride-hailing platform Grab and e-commerce player Bukalapak – featured in the first six investments and used car trading business Carsome came not long after.

With Grab and Bukalapak now listed, 500 Global could easily liquidate the positions. But the firm doesn’t want to do that amid weak public markets and LPs are not clamouring for distributions. Ng contends this is because 500 Global, as a seed-stage investor, has weathered the technology sector valuation correction better than its peers: a unicorn once on course to return 2x of Fund I is now tracking at 1.5x.

If entry point is one contributing factor, then diversification is another. “We are not super-concentrated. The fund makers are concentrated, but with 100-plus investments, you end up having more shots on target and more chances to score three-pointers. The chance of getting an outlier is more real,” Ng said.

These dynamics laid the ground for the launch of 500 Global’s third Southeast Asia fund in mid-2022. The firm set a relatively conservative target – Fund II was about USD 25m larger than Fund I, Fund III would exceed Fund II by the same quantum – only to canter to a final close of USD 100m earlier this month. A further USD 43m was raised for a growth-stage vehicle.

Participants include a sovereign wealth fund, pension funds, an Asian university endowment, family offices, and existing portfolio companies. Half the LP base is institutional, up from one-third in the previous vintage. Moreover, with contributions from the likes of Malaysia’s Khazanah Nasional, KWAP, and Employees Provident Fund, it has gone from 40% Asia to 60% Asia.

“Once LPs saw that, even with price adjustments, the performance of earlier funds is resilient, they started prioritising us. One LP committed USD 5m and then asked for USD 5m more. Another mentioned USD 5m and ended up at USD 15m. This came when the market hit rock bottom, which suggests other exposure hadn’t performed as well and they didn’t want to reallocate to those managers,” said Ng.

“Raising more than USD 75m does make a difference. It used to be that from the seed round to the Series A and B follow-ons, a company’s valuation would go up 5x-10x. Now it’s only 1.5x, but they are still more mature and de-risked. There is good value in doing follow-ons for the most durable companies.”

Fintech to agtech

500 Global is keen to deepen its exposure to financial technology in the new vintage. To date, the firm has focused on consumer-centric applications such as mobile wallets and buy now, pay later. But closed-loop fintech is increasingly interesting: expense management apps for truck drivers that form part of a broader software offering; and payment cards that allow parents to monitor their children’s spending.

Generative artificial intelligence (AI) is another focal point, though treated with caution. 500 Global was an earlier back of Australia’s Canva, a design services marketplace that integrates AI into its platform to deliver automatic design prompts. Ng wants Southeast Asian start-ups to do the same in other verticals.

“If they can create something that is unique and useful, then we are interested,” he said. “But we are cautious. There’s a lot of hype around generative AI right now, and not all start-ups will survive.”

However, the dominant theme of Fund III could well be agricultural technology. There are already pointers in Fund II, which includes eFishery, a provider of smart feeding systems – plus support on procurement and marketing – to Indonesian fish and shrimp farmers. The company recently closed a USD 200m Series D round at a valuation of USD 1.3bn.

500 Global has backed start-ups that use much the same business model in other segments, and there is a desire to do more. Ng highlights Qarbotech, a Malaysia-based start-up that leveraged intellectual property from a local university to create a biocompatible solution that increases the rate of photosynthesis in leafy plants, as a current portfolio standout.

“Southeast Asia has a long history of science in this area because agriculture is a large part of GDP. Malaysia is a leading global rubber producer and the Rubber Research Institute of Malaysia pioneered technologies that extract more rubber from trees and optimise the timing of the harvest,” he said.

“This is big money for Malaysia. Stanford isn’t researching rubber, rice, palm oil, or durian trees. It is looking into other things.”

The more intellectual property that emerges from Asia and achieves commercialisation, the more entrepreneurs will be encouraged to pursue innovation in agriculture. The added implication is that the strategy of mining developed markets for start-up business models that can be replicated – with a few tweaks – in Southeast Asia will ultimately become less important.

“There are interesting ideas in the consumer space as well as in agtech,” Ng added. “We backed one company that is like Impossible [protein replacement] for coffee because it doesn’t use coffee beans. Fermentation creates the caffeine taste. Another company, which is about to close a Series A, uses fermentation to remove sugar from juice. Taste tests have been really positive.”

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• Topics
• Southeast Asia
• Venture
• Technology
• Financials
• Early-stage
• Fundraising
• GPs
• 500 Startups
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• TMT
• Agritech
• Fintech
• artificial intelligence
• seed