Southeast Asia’s funding ecosystem remains strong, but there’s a growing concern given the ongoing recession and political instability around the world.

However, what does it look like for the startup industry as a whole. We wanted to delve into this to better understand how it all works, so we spoke to Murli Ravi, Co-Founder of Tin Men Capital, a Singapore-based venture capital fund management company which focuses exclusively in B2B tech companies in the region.

Murli currently runs Tin Men’s investment strategy and market analysis functions. He has extensive experience with previous positions in Temasek Holdings, JAFCO and INSEAD.

Paul Ong from InnoVen Capital discusses how venture debt might be the answer to the funding slowdown in Southeast Asia

The fund is primarily focused on software companies that primarily address opportunities in underserved and under-digitised industries. The Southeast Asian region presents several areas where technology can play a dramatic role in levelling up legacy businesses, which have historically relied on large capital investments and big workforces.

By focusing on startups addressing such opportunities, Tin Men has been able to step in to support B2B founders especially with the majority of funding going towards B2C.

What is your investing philosophy?

Our philosophy and strategic approach can be summarised as “taking a Private Equity approach to Venture Capital”. To explain:

We build a concentrated portfolio of capital-efficient enterprise technology businesses: Tin Men Fund I invested in 7 companies and the recently announced Fund II will remain concentrated with about 10-15 companies.

We take a significant minority stake and play an active lead investor role in all of our companies. Our active approach and limited number of companies means that we can dedicate the time and resources to get deeply involved in day-to-day operational matters of our companies. This includes setting up sales operations, defining the details of product pricing, helping to evaluate the tech stack for durability & scalability, ensuring that robust financial management processes are put in place, and more.

Lastly, we bring our companies growth capital in follow-on financings and prepare them for exits to strategic and financial buyers.

All of this combines to produce venture returns without requiring a single billion-dollar exit. This is in contrast to most other venture capital firms, which spread small bets widely across dozens or even hundreds of companies per fund. This dilutes the influence that the VC can have on any one company. Moreover, given the small ownership stake held in each company, the fund requires one or more billion-dollar exits to produce venture returns.

What is the next big opportunity for Southeast Asia?

We focus on investing in B2B technology companies operating out of Southeast Asia.

The backbone of Southeast Asia’s economy is made up of traditional industries such as maritime, manufacturing, agriculture, hospitality, construction, logistics, commodities and many more. These industries are increasingly adopting digital technologies starting from a low base. Leaders in these industries understand that even a small percentage increase in asset utilisation enabled by technology can be worth a lot in absolute dollars. Our portfolio companies have already shown how these opportunities can be unlocked.

While this trend was already taking shape when Tin Men launched in 2018, the imperative for enterprises to digitize accelerated sharply during the pandemic.

In general, technology is a deflationary force as it increases productivity and reduces costs, a well-established trend observed over decades across several economic cycles. This means that customer demand for enterprise software increases relative to other expenses during inflationary periods, such as the one we are in right now.

Are you excited about any particular market or country in Southeast Asia? If so, why?

All of our portfolio companies thus far have been headquartered in Singapore. However, all of them have operations in markets outside Singapore. These span every Southeast Asian country as well as other markets such as Australia, Japan, Korea, the US and Europe. The benefit of being based in Singapore and investing in Singapore-headquartered companies is that Singapore is the largest financial centre in Southeast Asia and attracts ambitious entrepreneurs. Given that Singapore itself is a small market, being based here also encourages entrepreneurs and investors based here to take a regional view from day one.

That said, we do certainly see opportunities that are specific to a single country. However, we do not make top-down calls on any particular country. Rather, we evaluate each founder who approaches us on their own merits on a bottom-up basis. We also take an honest look at whether we are the right investor for them – it is sometimes the case that a company ticks all the boxes for us but that we don’t tick all the boxes for them.

Is there any advice for founders who are affected by the changing investment strategies?

It is no secret that money has gotten more expensive, even for software companies that benefit from the above trends. While this hurts all companies, it hurts some more than others. Startups that historically depended on raising increasing amounts of capital at unreasonable valuations to fund growth while disregarding the need to have solid unit economics have already started to find themselves in a tough situation. Founders (and their investors) who have been more disciplined find themselves with an opportunity to put some distance between them and their rivals. Management teams will need to find the right balance for them across these three factors: robust demand, slowing economies and expensive capital.

We see that the downturn in investment has been seen most clearly in late-stage funding rounds, which are raised by large heavily cash-burning companies (mostly B2C). In contrast, early-stage B2B technology companies remain attractive investment opportunities. This is because the healthy unit economics of enterprise software startups require much less capital to grow.

Founders will be gratified to know that the investors who back our fund understand and agree with all this. They also understand that investing in B2B technology is not only about capital, but also about deep domain expertise and active ongoing involvement with portfolio companies. Therefore, we continue to receive support from ultra-high-net-worth individuals and families from Asia, US and Europe, who built their own wealth by running their own businesses. We have also received capital commitments from financial investors who understand the opportunity we face and have a deep appreciation for how we generate a return on their capital.

What’s next for Tin Men?

We recently announced the first close of Tin Men Fund II and are actively seeking out new investment opportunities. Our focus remains on Series A tech startups that primarily serve large businesses in traditional industries.

Our investments and operations teams will soon double in size to handle the larger portfolio. In addition, we have already added new external partnerships and, more broadly, are growing the ecosystem of service providers and advisors that support our portfolio companies and the broader B2B technology community in South East Asia.