The number of Series C and D deals—typical growth-fund investments—rose by three deals year-on-year to hit 19 in the first half of 2019. However, the overall amount raised dropped by $100 million to $600 million. Total funding for Series B deals, meanwhile, increased by 40% over the same period.
“For aspiring unicorns (startups worth $1 billion or more) to graduate, Southeast Asia needs more late-stage financing through investments that range from $25 million to $100 million and above, which are typically raised in Series C and D,” the Google-Temasek report said.
what are growth funds and how can they help?
One person’s problem is another’s opportunity. The chance to plug this gap is being grasped by investors including local players Asia Partners, East Ventures, and Golden Gate Ventures, and those further afield such as global VC firm GGV Capital, US-based General Atlantic, and private equity giants TPG Capital and KKR, whose assets under management stand at $72 billion and $150 billion, respectively.
Spying parallels with more advanced markets, they smell the chance to make outsized returns from bets on hyper-growth companies that develop into Southeast Asia’s giants of tomorrow. With potentially hundreds of millions of dollars of additional investment flowing into the region, there’s increased pressure for Southeast Asia’s exit window to finally open and give investors the returns they need.
Increasing investment in growth funds
Raising $250 million is a lot for any firm, but it’s certainly a remarkable landmark for an early-stage specialist like East Ventures. The decade-old Indonesia-focussed venture capital firm launched its first growth fund in 2018.
East Ventures is well known for its prolific dealmaking, writing checks as low as $100,000 for fledgling companies. But it entered late-stage dealmaking with EV Growth, which invests up to $25 million per deal. The fund is anchored by long-time East Ventures limited partners SMDV—the venture capital arm of Indonesian conglomerate Sinar Mas—and Yahoo Japan’s YJ Capital. The SoftBank Group, parent of the controversial Vision Fund, is among its other backers.
As a firm that’s been active in Southeast Asia for a decade, East Ventures has watched its portfolio companies grow. With a track record of six funds in Southeast Asia and two in Japan, East Ventures was able to raise EV Growth to support its most promising portfolio companies as they grow and extend their fundraising demands across Series C, D and a little earlier.
“We thought, ‘There’s a gap in Series B in Southeast Asia, many of our portfolio [companies] are good, so why not do this together?’” managing partner Willson Cuaca said at the time of EV Growth’s launch. “SMDV and YJ Capital have been our long-term partners in Japan and Southeast Asia, so it’s the perfect partnership… the chemistry is already there.”
Singapore’s Golden Gate Ventures announced plans for a $200 million growth fund last year, but it has a different approach. Michael Lints, the partner helming the new venture, said that just 20% of the fund is allocated for startups backed by Golden Gate Venture’s core funds.