STRIVE or the venture capital firm formerly known as GREE Ventures just announced the first close of its US$130 million third fund called STRIVE III. This fund is expected to do their final close by the end of 2019.
According to the official announcement, STRIVE III is focused on seed stage investments predominantly in the B2B sector. We thought this was the perfect time to speak to newly promoted Partner Nikhil Kapur to find out more about the rebrand and what he believes is in store for the investment scene in the region.
Nikhil has been a fixture in the investment scene in the region these past few years and has a strong track record of identifying winners even in the early stage. He shares his thoughts on the region, hot industries to watch out for and what’s next for STRIVE.
Cento Venture’s Mark Suckling shares his thoughts on investing in Southeast Asia
Congratulations on the recent rebrand. Can you tell me what was the reason behind the change?
We have long existed under the GREE Ventures brand due to our deep partnership with GREE Inc, in Japan. While we continue to have GREE Inc as our anchor LP ( Limited Partnership), we have many more LPs in the fund now, and hence it made sense for us to be an agnostic brand.
We also wanted to come up with the right branding that showcases our early stage efforts across Asia while also reflecting our active investment strategy. “STRIVE” was the right fit for this reason.
In your time as a VC, how has the scene changed in Southeast Asia? What has been the biggest shift in the investment scene in Southeast Asia over the last 5-6 years?
I came to Singapore exactly 5 years ago and immediately got immersed in the startup ecosystem here. Being a founder from India, I found the ecosystem in SEA small yet bubbling. In the last 5 years, this bubble has blown up massively. In hindsight, the 2013-14 timeframe was the inflection point for this market with the beginning of the growth of Grab, Redmart etc.
We now have a significantly different amount of capital in this market. Capital that is dedicated for these markets and is actively chasing good companies. The talent is more mature, although we are yet to see a lot of serial entrepreneurs. And the gap in between what business models are coming up in other markets vs in Southeast Asia is reducing very fast.
Southeast Asia’s startup scene seems to be thriving in terms of both investments and the number of startups entering the market. Is this an accurate assessment of the market?
I think the growth in amount of investments and funds raised is much faster than that in number of qualified startups emerging. This is leading to Series A rounds growing bigger and bigger, and capital piling on to fewer companies. We don’t see as much challenge in the Seed stage. Yes, the round size has grown, but maybe from $0.5M earlier to $1M now. However, Series A has gone from $1-3M earlier to $3-10M now. That’s a massive jump, and that showcases more capital chasing fewer companies.
According to this article, you’ve mentioned that you are looking to only do about 20 investments in the region and India as well. Do you see greater opportunity outside of Southeast Asia?
Our investment strategy is very different from a typical Seed fund. A typical Seed fund in the market tries to diversify as much as possible. You seed funds investing small cheques in 50-80 companies, trying to build a “platform” approach to help their companies, and doubling down on a few that succeed. I call these investors “passive investors”. Because for almost 90% of their portfolio they have no clue of what’s going on within a company.
Our approach is very different. We feel that early stage startups have a lot of risk inherent in them, but risk that can possibly be mitigated with our active involvement. Issues such as co-founder issues, product market fit challenges, inconsistent business plans, too much burn at too early a stage, and so many others are all examples of things that you can solve with a bit of active involvement in the companies from Day 1. So we tend to invest our capital and lend a helping hand to the founders to help them in what they need – recruitment, fundraising, business plan, and an advisory board. Meanwhile, we also keep a close eye on any potential issues cropping up and warning the founders in advance when we see a spark that may light a fire. The only way we can do this is by investing in fewer companies, hence the target to do 20 investments with this fund.
This approach has worked well for us. In our first fund, we invested in 9 companies. All of them are either alive or were sold. We got 5 exits out of 9 investments, one of them is a unicorn (Bukalapak), another is one of the largest acquisitions by Grab (Kudo), another sold to Google (Pie), and another got sold to LVMH to become the digital arm of Sephora (Luxola). We run that fund at 1x DPI, 40% IRR, and it’s 2014 vintage. No many in this market have this sort of a track record for early stage investments. It’s not simply about how many successes you see in a fund, but also about how much capital it took for you to get your successes.
Do you believe we are in an investment bubble in Southeast Asia and do we need a correction?
We are not in any bubble, just on the upswing of the cycle. I don’t know how long the upswing will last, and when there will be a down turn. It usually depends on overall global economy performance. But tech will continue to rise across the globe, there are hundreds of problems to solve in Southeast Asia, and we are now seeing better quality of entrepreneurs than ever before. So I see things to only improve for tech startups in the future in the region.
Here’s part 2 of the top VCs in Southeast Asia
As an investor what are you looking for in a Southeast Asian startup?
It doesn’t matter where the company is based. We are looking for growth, significant value capture, and solving fundamental problems in the market. These companies can be local, regional, or global, but as long as they have a strong team chasing a large opportunity in a growth-oriented manner, we are very positive.
What are some of the companies in the region that have caught your eye? Are there any industries that we are undervaluing or overvaluing at the moment?
Well, all our portfolio has definitely caught our eye ☺
While most sectors are getting their fair share of limelight, I feel two sectors are still a bit behind, both from founder and investor outlook. These are healthcare and insurance. Both of them are very fundamental sectors for driving a country’s development, yet not many companies are seen seeking and getting investments in these spaces.
Which industry or startup do you see as the next big thing in the region?
It’s too difficult to say what startup, but I feel next 5 years of growth in the tech sector is going to come from SME enablement in the region. Fintech is likely going to be the first sub sector here, and then we’ll start seeing various other verticals emerging.