Go Southeast, young VC

The Southeast Asian market is heating up. Investors setting up shop include Temasek-backed Vertex Ventures, Vulcan Capital and Flipkart founder Binny Bansal.

On Eddy Chan’s left wrist, he wears a bracelet that features the word “Serendipity” engraved on it.

The bracelet was a 2018 Valentine’s Day gift from his wife. The couple met each other on a blind date orchestrated while they both happened to be in Hong Kong in 2009.

Chan says serendipity has always been a core tenet of his, which he traces to his grandfather and father, who taught him to always put “my best foot forward but have the humility to understand and acknowledge the super-power role of serendipity in life and business.”

Serendipity also plays into Chan’s professional career. He happened to meet his business partner Patrick Yip because he was a college roommate with Chan’s best friend.

In 2017, Yip and Chan became co-founding partners of Intudo Ventures. The pair closed their second fund in February at $50 million, more than double their $20 million debut fund.

There are other Indonesian firms and other investors, such as East Ventures, that fuel startups in the country. But Jakarta-based Intudo Ventures is laser-focused on Indonesian companies, and it is believed to be the only firm based in Indonesia that invests solely in that country.

And Intudo Ventures incorporates serendipity in its name. “Intudo” is a mashup of the concepts of integrity, sincerity and serendipity. In the Bahasa Indonesian language, those words are respectively integritas, tulus and jodoh (the underlined letters spell Intudo).

Intudo Ventures' Eddy Chan, Ashley Suhalim, Isaura Tjhiater and Patrick Yip
L-R: Chan, Suhalim, Tjhiater and Yip.

The firm underscores a growing trend as the Southeast Asian market heats up and interest swells for local startups. A number of investors, including Temasek-backed Vertex Ventures, Flipkart founder Binny Bansal, and Vulcan Capital, the investing arm of the late Microsoft co-founder Paul Allen, have each announced funds this year that will zero in on the region.

Meanwhile, U.S. firms are setting up satellite locations in Southeast Asia. GGV Capital, which has offices in Menlo Park and San Francisco, has been active in China for two decades, with additional bureaus in Shanghai and Beijing. The firm opened an office in Singapore this year, its first in Southeast Asia. GGV Capital did not respond to requests for comment.

Singapore-based Golden Gate Ventures (unrelated to GGV Capital, though its initials are also GGV) opened an office in Kuala Lumpur late last year and the venture firm plans to invest $18 million to continue to support Malaysian startups.

And at least one U.S.-based pension is planning to cross the Pacific Ocean and set up an office there. Teacher Retirement System of Texas is considering a satellite in Singapore as it aims to bulk up its footprint in the region. The system, which has $22.2 billion invested across its portfolio in Asia-Pacific assets, believes that an office in Singapore would help it better access the local markets. “We’ll be 14 hours closer to the activity,” CIO Jerry Albright said at the investment board’s July meeting.

A Texas TRS spokesperson declined to discuss the matter, but said, “We’re still finalizing an office opening date, probably sometime in 2020 pending our board’s sign off.”

“For LPs, I’m sure many are thinking about their emerging manager allocation in Southeast Asia,” says Shiyan Koh, general partner of the Hustle Fund. “LPs should be asking is [the market] big enough? And should they be paying attention?”

She answers by saying, “The market is not insignificant.”

Koh, a Singaporean, joined the Hustle Fund last year. The firm invests in North America and Southeast Asia. Koh has spent several years in the United States, including six as vice president for the San Francisco startup NerdWallet before she relocated back to Singapore.

Anecdotally, she says she’s seeing more funds locally getting started.

What’s drawing the attention of GGV Capital, Texas TRS, Intudo and other new funds is a maturing startup scene, a growing number of unicorns (eight throughout Southeast Asia as of the last count in mid-October) and several notable exits.

In addition, there are 360 million internet users in Southeast Asia, the most engaged mobile internet region worldwide, according to the latest “e-Conomy SEA 2019” report by Google, Temasek and Bain & Co.

The report also said that Southeast Asia has one of the youngest populations among the major world regions, making it ideal for startups focused on consumer tech and social communications. Engagement on video apps in Southeast Asia has doubled in the last three years thanks to live streaming technologies.

A separate report on Southeast Asia’s tech investments in the first half of 2019 by Cento Ventures showed that early-stage activities, roughly deals less than $500,000 in size, experienced a spike in the first six months of the year, reaching 254 deals after remaining fairly flat between 2016 and 2018.

Peng T. Ong, managing partner of Monk’s Hill Ventures, said he’s seeing an explosion of lending companies in Southeast Asia.

“Almost any service vertical, whether it be in healthcare, education, transportation, retail or travel, are seeing growth,” says Ong, who previously was co-founder of the online dating site now known as Match.com, formerly Electric Classifieds. Most recently, Ong was a venture partner at the China-focused firm GSR Ventures before co-founding Monk’s Hill Ventures with Kuo-Yi Lim five years ago with an $80 million fund.

Monk’s Hill Ventures, which has offices in Jakarta, Singapore and Vietnam, is currently in market for a second fund. The firm has also backed U.S. startups that could impact in Southeast Asia, including some founded by entrepreneurs with Southeast Asian roots eyeing their home markets. This includes San Francisco-based ELSA, co-founded by CEO Vu Van from Vietnam and which is developing an AI-powered English pronunciation assistant.

Ong says the growth of Southeast Asia reminds him of what it was like in China the last decade. But instead of VCs flying in for a short stay and getting involved in a few deals, he’s seeing a difference in the current excitement over Southeast Asia.

There are two kinds of investors who are looking at Southeast Asia, Ong says. “There are those who have setup dedicated offices here and those who are working with us and other local firms to co-invest.”

Local fundraising is certainly on the rise. Preqin found that six local funds in Southeast Asia closed in the first half of 2019, raising a total of about $500 million, on a similar level to the same period in 2018. Throughout all of 2018, a record 17 Southeast Asian-focused venture funds achieved a final close, securing a total of about $900 million in the year, according to Preqin’s PE and VC market report on Southeast Asia, released in September.

“There is just tons of startup activity in the region,” says Vishal Harnal, a partner at 500 Startups and lead for the firm’s investments and operations across Southeast Asia. “Frankly, there’s still much more capital that can be absorbed into the region. I wonder why more U.S. and Silicon Valley firms aren’t investing in the region.”

In Southeast Asia, 500 Startups invests through its Durians family of funds. The Durians team has backed about 150 companies across multiple sectors from internet to consumer to deep technology. Its portfolio includes the unicorns Bukalapak from Indonesia and Grab from Singapore.

Harnal, a Singaporean, notes that in 2014 there were very few early-stage players in Southeast Asia. But he says that has changed as more early-stage and later-stage capital has come in from numerous sources, including local corporates, family offices and international investors, such as from China.

“China is getting more aggressive in Southeast Asia,” Harnal says.

China’s venture firms have increased their investment in Southeast Asia tech startups more than fourfold this year as they eye opportunities in a region that is seeing increasing numbers of consumers come online. Chinese firms poured in $667 million in the first half of the year, up from $148 million in the same period in 2018, according to data from Refinitiv.

Local corporates, too, are interested in investing. Take, for example, Grab, Southeast Asia’s most popular ride-hailing company. The company received a $1.5 billion cash infusion from investor SoftBank in early 2019.

As it seeks to grow its presence across the region, Grab said it will use the money to add more services, such as augmenting its on-demand car and motorcycle services and food delivery platform. It also plans to invest in Indonesia, where it competes against Gojek. Gojek, which is smaller in size than its rival, is backed by Tencent and JD.com from China as well as Google, Mitsubishi and others and has achieved unicorn status.

Chan, Suhalim, Tjhiater and Yip.
L-R: Chan, Suhalim, Tjhiater and Yip.

Intudo Investors has benefited from this increased investor interest.

The firm’s second fund, more than double their first, was raised from a variety of institutional and individual investors, some of whom are U.S.-based VCs, as well as 20 Indonesian families. Chan says the firm is getting more interest from U.S. institutions and Chinese corporates who are interested in the Indonesian startup scene.

Disclosed LPs in Intudo include the Founders Fund, Wasson Enterprise, the U.S. family office of former Walgreens CEO Greg Wasson, World Innovation Lab, Taiwan’s Uni-President Enterprises Corp and CTBC Group, also from Taiwan.

Trae Stephens, a partner at Founders Fund, told Venture Capital Journal that his firm has known Chan for years and invested in Intudo to get exposure to some of Southeast Asia’s future wave of startups.

“The next class of successful tech companies is likely to be distributed across geographies rather than centralized in the [San Francisco] Bay Area, so there’s a lot of value in exploring markets others may be overlooking,” Stephens says.

Singapore is the hub of most of the business activity in Southeast Asia, thanks to its favorable tax and business policies. But Indonesia, where Intudo focuses, sports a $1 trillion GDP and the world’s 16th-largest economy. With 270 million people inhabiting its islands, Indonesia also ranks as the fourth most populous country in the world, behind China, India and the United States.

Southeast Asia, overall, has a high mobile internet penetration with more people coming online. Indonesia in particular has some 150 million internet users, and the e-commerce penetration has reached 107 million users, or 40 percent of the total population, according to a report called “A Bird’s Eye View of SEA VC,” by John Landers, an advisor to Intudo Ventures.

Companies in Intudo’s portfolio include used car selling platform BeliMobileGue, which raised a $10 million Series A, co-working space operator CoHive, payment gateway provider Xendit, genetic testing startup Nalagenetics, student loan platform Dana Cita, fintech startups Oriente and EMQ, and fitness startup Ride Jakarta. Intudo Ventures aims to invest in four to six early-stage deals a year.

But what sets the firm apart is how it scouts U.S. universities. The firm, led by Chan’s efforts, seeks Indonesian talent to support the firm’s portfolio companies hiring of new talent. Intudo encourages students to launch startups of their own back home.

In 2017, about 9,000 Indonesians were studying in the United States, a 13-year high, according to a U.S. State Department report. The number ranks Indonesia at 19th amongst countries with the most students at universities in the United States.

Chan recites this number, and hearing him talk, it seems like he’s met most of the 9,000 students. Chan, who lives in the San Francisco Bay Area, travels to Jakarta to be with the team every couple of months. But for much of the rest of the year he travels the United States and visits schools, including Harvard and Stanford, among others. He meets with alumni networks and encourages students to think about returning home. Even if they graduate and join a Google, a Microsoft or another large tech company, he knows that eventually they will think about taking their talents and returning home.

“We hope to be the first firm that entrepreneurs think of when they decide to start their Indonesia-focused company,” Chan says.

The firm says the approach has yielded results as a handful of existing and prospective companies have been sourced via their “SEA Turtles” strategy.

When Intudo Ventures launched two years ago, it did so with the intent of focusing on entrepreneurs who had studied or worked abroad and may look to return to the Indonesian market. In local parlance, the returnees are known as “SEA Turtles.” The phrase is an abbreviation of Southeast Asia as SEA and a reference to actual sea turtles that take epic swim migrations but return to where they were born.

In China in the 2000s, returnees were also known as sea turtles (haigui), and they had a big influence on the growth of the Chinese tech community.

Chan says Intudo Ventures is intentionally engaging with the Indonesian students studying in the United States early on with the hope that they reach out to the firm when they want to launch their startups. In China, returnees became less valuable over time as the local tech industry matured. Chan says that similarly as the Indonesian tech ecosystem scales, he expects the returnee value will likely diminish. But he doesn’t expect that to happen for years.

In the meantime, the firm is playing the long game. But, of course, Intudo has serendipity on its side, and Chan knows it’ll eventually work in their favor.

“Serendipity is what our firm is built off of. It’s in our name,” Chan says.

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