I call this trend the ‘Rise of Holy Shit Money’:
Over the next two years, nearly a billion dollars of venture capital will begin investing in companies across Southeast Asia.
Nearly a billion dollars of venture capital. This isn’t a billion dollars of government grants. This isn’t a billion dollars of subsidies. This isn’t a billion dollars of tax incentives, credits, or other intangible bullshit. This is a billion dollars of venture capital money investing in early-stage technology companies based and operating in Southeast Asia
Indeed, Southeast Asia is now seeing the rise of ‘Holy Shit’ money. A billion dollars. The number almost sounds silly to entrepreneurs and venture capitalists operating out here in Southeast Asia: even when I say it, I almost feel like Dr. Evil making shit up.
But it’s true. Jon Russell wrote a brilliant article in The Next Web highlighting the emergence of funds dedicated to Southeast Asia: Monks’ Hill raising $80 million; Rakuten Ventures, at $100 million; Cyberagent Ventures grabbing $50 million; the list goes on. More importantly, the list is not exhaustive.
Readers take note that the recent spate of funding news you’ve been seeing in Digital News Asia, Tech in Asia, or e27 is not going to be letting up any time soon; there will be more on the way. And these funds represent a tectonic shift in venture capital, technology transfer and adoption, and startup formation. Tech in Asia follows funding rounds in Southeast Asia pretty closely, and there is now what seems like a constant stream of financial news. One need only scan recent articles to quickly come away with the feeling that this was the start of something Big.
[Note: these are solely the opinion of the writer]
1) These funds will be positioned as Series A funds, investing upwards of $1M and up. However, expect them to participate in Series B rounds if the opportunity and ticket size is right, and Seed rounds if it fits their investment mandate and experience. Therefore, these funds can be considered multi-stage funds, with a majority of capital being devoted to Series A investments.
2) The number of Series A investments will explode across the region. There are many, many companies across Southeast Asia primed for Series A rounds. Whereas two years ago these companies might have had difficult raising a Series A (sadly enough, RedMart’s experience was typical; then again, those guys have recently elicited a few ‘holy shits’ themselves), the market is much more capable of — and willing to — write $1-3M checks.
3) The lion’s share of funding will be split between Singapore and Indonesia. It’ll be an awesome time to grow a company in either of these countries, especially if you’re looking for Series A, but there are still caveats. Singapore entrepreneurs, take note: unless you can justifiably prove that Singapore is a large enough market for you (RedMart is a good example), you’ll need to show traction in at least two other markets to really have a better time of the fund raise. Indonesian companies can justify being Indonesia-only, but will need to show significant traction in-country.
4) There will be more venture capital activity in the Philippines, Thailand, and Malaysia, but unless otherwise specified, these countries will take a backseat to investments into Singapore and Indonesia. Right or wrong, most investors are going to be focused on Singapore and Indonesia; the former for the relative easy access to quality deal flow and syndications, the latter because it’s so fucking big, holy-shit-money.
That being said, there’s simply too much money coming into the region now that smart investors will at least start actively exploring other markets. Vietnam and Cambodia are still a ways off, and most investors will not invest there if they do not have trusted partners in-country or extensive experience navigating the landscape. This is primarily due to former’s byzantium financial and legal processes, the latter because its ecosystem is still too nascent. Interestingly, Myanmar is likely going to see some deals, mainly due to the fact that it’s a blue ocean market in every sense of the term.
5) Singapore will arguably benefit the most, both in terms of fund incorporation and startup formation. Of the funds coming online, six are doing so on the back of the National Research Foundation’s Early Stage Venture Financing Scheme. The NRF ESVF Scheme provides 1:1 matching for funds to invest exclusively into Singapore-incorporated companies, for a maximum fund size of $20M SGD. [Full Disclosure: Golden Gate Ventures was selected as one of the six.] Not speaking for Golden Gate Ventures, that $20M SGD will likely be treated as a carve-out of a larger fund intended for Pan-Southeast Asian investments.
Other funds, especially those relatively new to the region, will likely incorporate in Singapore; a majority of other funds will boast at least a significant presence in the country.
And as we all know, startups will follow the money. Local startup formation will see a significant uptick, especially given the funds’ ability to invest in seed rounds. Other startups in the region will incorporate a holding company in Singapore, either voluntarily or as a condition precedent to raising money from certain investors (read: those new to the region) and/or mark Singapore as first stop on the map to raise funds.
6) Valuations will rise. There’s simply too much money coming into Singapore now. Don’t forget, this is a city-state of 5M people. That much competing money cannot be absorbed without a subsequent rise in startup valuation. Venture capital funds will be more aggressive in finding and securing deals, and so valuations for companies will rise.
7) The Rise of the Seed+ Round. The Seed+ Round will be a small round following the Seed, intended to help companies scale into new markets across Southeast Asia: hiring a local country manager, setting up a sales team, and testing and scaling up country-specific marketing campaigns. This is distinguishable from a typical bridge round, which can and is generally used for any number of initiatives: product development, marketing, human resources, so on and so forth.
The Seed+ Round will be specifically intended to help companies move beyond their borders, which is absolutely essential for companies looking to safely secure a Series A. I expect Seed+ Rounds will be most commonly applied to funds’ existing portfolio companies: funds will treat Seed+ Rounds as follow-on investments into companies they’ve already funded.
There’s so much money coming into the scene now, it’s actually fascinating to see how it’s going to affect Southeast Asia. We’re already starting to see the changes, both in the calibre of startups raising funding to the tremendously experienced and value-adding investors moving into the region. I’ll be frank: this is a fucking awesome time to be an entrepreneur and investor in Southeast Asia.