Southeast Asia VC: Growth agenda

When Jungle Ventures was on the fundraising trail in 2015, LPs were wary of Southeast Asia. The potential was there: The region boasted a relatively young, consumption-oriented population, including 240 million internet users, most of whom were going online via mobile devices. But the certainty was not. Investors questioned whether Southeast Asia would follow the path of China or India. Would the ecosystem be deep enough? Would there be the semblance of paths to liquidity?

"The inflection point had started for internet users but there weren't a lot of great managers. When I think about how the ecosystem has developed in the last four years, it's been a complete sea change," David Gowdey, a managing partner at Jungle, told the AVCJ Indonesia Forum, pointing to a growing number of local GPs, greater LP participation, more start-ups reaching scale, and early signs of liquidity. "There is a lot more interest in this part of the world."

The VC firm recently gave notice of that interest through a $175 million first close on its third Southeast Asia-focused fund. LP commitments came from the likes of the International Finance Corporation, Temasek Holdings, DEG, and Cisco Investments. The vehicle launched last year with a target of $150 million, but this was increased in December to $200 million. Now it is expected to reach $220 million.

The first close alone represents a significant increase in size from the fund Jungle was raising in 2015, which closed at $100 million. It places the Jungle among the growing ranks of VCs that are looking to raise larger funds for Southeast Asia. Golden Gate Ventures recently announced plans to raise a growth vehicle in conjunction with Korea's Hanwha Asset Management, while EV Growth is a similar initiative launched by East Ventures and Sinar Mas Digital Ventures (SMDV). Gobi Ventures is also in the market with an ASEAN growth fund. Around $200 million appears to be the sweet spot.

These GPs are not the first to pursue this approach, although they might claim to be the pioneer group of independent Southeast Asia-only managers. B Capital Group, Vickers Venture Partners and Vertex Ventures raised growth funds in 2017, but in each case, Southeast Asia is part of a wider mandate. The motivations are also well-documented. Southeast Asia's internet economy – based on ride-hailing, online media, online travel, and e-commerce – is expected to grow from $72 billion in 2018 to $240 billion in 2025, but start-ups often struggle to raise capital in the Series B and C rounds.

Nick Nash, the former CEO of Sea and now managing partner of recently established GP Asia Partners, offered some perspective as to the size of the funding gap. By his calculations, it is 100 times harder for a company to raise $20-100 million in equity in Southeast Asia than in the US, and five times harder than in China. JinA Bae, head of corporate venture at Hanwha, also told the forum that 180-200 start-ups will be seeking B and C funding in the next two years. This assumes that only 10% of those that raised seed and Series A rounds in 2016-2018 make it through to the next level.

The implication is there will be plenty of deals for these funds to feed on. However, they do not exist in isolation. Although global growth players are still infrequent visitors to Southeast Asia, domestic strategic participation is on the rise and there is more interest coming out of China, from VCs and tech players alike. It is far too early to suggest that the growth space will become overpopulated, but investors must be aware of the evolving dynamics and what they mean for start-ups in Series B and beyond. 

The possible scenarios are endless: GGV Capital might identify commercial partners in China; Grab Ventures and Astra International could provide access to new customers, verticals and expertise within existing markets; and Alibaba Group and Tencent Holdings might facilitate exits for incumbent investors when they come into a Series C and D rounds or make full acquisitions. 

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• Topics
• Southeast Asia
• Fundraising
• Venture
• Technology
• Jungle Ventures
• Golden Gate Ventures
• East Ventures
• Gobi Partners
• B Capital
• Vickers Venture Partners