Golden Gate Ventures recently closed a new $60 million fund for Southeast Asia’s rapidly-growing startup ecosystem. The Singapore-based venture capital (VC) firm sees opportunities in the region, which has already attracted more than $1.7 billion in investment capital this year, and is projected to draw $40 billion over the next 10 years. The Post’s Cam McGrath spoke to Justin Hall, principal at Golden Gate Ventures, about the firm’s fund-raising efforts and take on the region’s investment climate.
You just closed your second fund. How difficult has it been to raise venture capital funds in Southeast Asia?
All fundraising is difficult, but I’m relieved to say that Southeast Asia is becoming a more attractive market for limited partners. However, they were Asia-focused to begin with, and saw Southeast Asia more as a new opportunity within the broader Asia economic narrative than an entirely different market.
How healthy is Southeast Asia’s startup scene, and is there indication it is following the same trajectory as China or India?
We feel that Southeast Asia has passed an inflection point in terms of venture capital and startup formation, in the sense that both are relatively self-sustaining industries now.
We do believe that Southeast Asia will follow the same path as China and India before it.
Is the growth as impressive when you take Singapore out of the mix?
Absolutely. Indonesia is driving a tremendous amount of investment and startup formation in the region. Indeed, many of the fastest growing startups from Southeast Asia hail from there: Traveloka, Go-Jek and Tokopedia, to name a few. The reasons behind that growth are too numerous to count, but chief among them would be the growing middle class of consumers, meteoric growth in mobile phone and internet penetration, and overall economic growth across the region.
Can we expect to see bigger transactions, and does this mean there will be less capital for smaller startups?
Yes, we can and should expect to see larger fund raises. However, that does not mean there is less capital for small startups. If anything, fund formation or allocations for early stage startups is increasing.
As a VC fund, what ‘patterns’ are you looking for in potential investments, and how fierce is the competition from other funds?
It essentially comes down to market, team, value and traction. In terms of competition, Southeast Asia is not so mature, nor so saturated with funds, that it’s difficult to work with one another or share deals.
Indeed, on the early stage side, funds work with one another more often than not. They have specialties and preferences that do not necessarily overlap at this juncture, so it’s been more cooperative than anything.
In other markets, VC funds look to exit their tech startups via an IPO. But in Asia, most exits are via acquisitions. Why, and is there any indication this trend will change?
This is generally the case because the local and regional exchanges historically have not had the kind of liquidity to make going public attractive. Often times, strategic acquisitions or M&As are where investors and successful entrepreneurs make a majority, if not all, of their returns. This is especially true of technology companies, which require a critical mass of technology-savvy buyers to make it worthwhile for them to list. However, with the renewed focus on tech in both Australia and Singapore (indeed, of the regional tech companies that did go public, the vast majority of them did so in Australia), this may be changing, slowly but surely. Even Thailand and Indonesia are starting to speak publicly about their own initiatives.
Have protectionist measures in Southeast Asia encouraged more M&As by making it harder for Western companies to establish a foothold?
No, I wouldn’t say that. If anything, I think it’s the sheer complexity and heterogeneity of Southeast Asia that puts off Western companies looking to establish a foothold. If a company sees a fundamental, strategic value in a particular country or market, they will make it work, period.
Have you looked specifically at any startups in Cambodia? How are the valuations and growth potential compared to more developed markets?
We have not looked specifically at any startups in Cambodia, but we would certainly be open to investing. Compared to more developed markets in Southeast Asia, the startup ecosystem in Cambodia – along with Laos and Myanmar – is perhaps the most immature.
What would attract venture capital firms to invest in Cambodian companies?
VCs would need to see one of two things: companies that specifically target Cambodian consumers and are touching on a large enough market to make it worthwhile to investors, or companies that are providing such a unique value, technology or advantage that are expanding across Southeast Asia.
This interview has been edited for length and clarity