David Gowdey, Managing Partner of Jungle Ventures
With Singapore and Jakarta occupying two of the top 10 spots for cities with the highest VC investments in 2019, it is safe to say Southeast Asian startups face no shortage of funding opportunities.
However, the pandemic has thrown a spanner in the works. According to reports, though median exit deal size in the region rose from US$5 million in 2019 to US$27 million in H1 2020, the average top investment amount fell from US$242 million in 2019 to US$77 million in the same period this year.
This decline could point to stalled deals as VCs struggle to carry out the necessary due diligence because of the movement restrictions imposed regionally.
Despite that, Jungle led a US$10 million Series B funding round in Betterplace, a Bangalore-based tech platform for blue-collar workforce management.
David Gowdey, Managing Partner of Jungle Ventures, shared in an interview with e27 that due diligence for the deal was conducted virtually, adding that it would represent a new normal for conducting future investments.
Below are the edited excerpts from the interview.
Which of the companies within your portfolio have the potential to become a unicorn in the next few years?
As we invest in India and Southeast Asia, we have Livspace and Moglix within our portfolio that are on track to be unicorns.
Founders usually don’t think about building a business just to get to a billion dollars or an arbitrary valuation number. It takes a long time to build a unicorn. Some companies would get there faster while others would be slower. It depends on the market that they’re in, but it usually requires several years to get there.
Also Read: Why David Gowdey of Jungle Ventures believes exits should be led by founders
We closed a US$100 million fund in 2016. Even the early investments out of that fund, it’s just been four years and these are mainly Series A and pre-Series A type of investments. So it takes time for these companies to grow into unicorns.
In Southeast Asia, there is definitely a cohort of businesses that you’ll start to see hit that billion-dollar valuation over the next one to two years. There’s the first cohort of companies which were founded between 2012 and 2014 which have become unicorns — the likes of Grab, gojek and Traveloka. The next batch should be joining them soon.
For companies turning into unicorns in the next one to two years, what do you think should be their preferred exit strategy?
As you get up to a billion dollars in size, the pool of buyers gets smaller. For example, if you’re a company that has a US$500-million valuation, there would be numerous companies that have a balance sheet that could afford that acquisition.
However, if you’re a US$15-billion company, the number of companies with the financial capabilities to make the acquisition is obviously fewer. Therefore, the larger you get, the more you would angle towards the public markets.
I do still think you’ll see a mix of both trade sales and IPOs. If you are a regional industry leader and there are similar businesses in the US and China that don’t have a presence in Southeast Asia, you will naturally be of M&A interest as they look to expand into the region and solidify their position as the market leader here.
“The larger you get, the more you would angle towards the public markets.”
A Peter-Thiel backed special purpose acquisition company (SPAC) recently filed to go public and is seeking to buy a Southeast Asian company. Does this signal the arrival of SPACs into the region?
SPACs have obviously been around for a long time, and a SPAC itself is nothing new. I do think it’s interesting to think about more regional companies listing in the US.
Sea Group has performed incredibly well. They are up nearly 4x this year and it’s been a great business to trailblaze Southeast Asia into US public markets. You need to be of a certain level of scale before you can think about listing on the US and a SPAC is no different.
Also Read: What does Peter Thiel-backed Bridgetown’s IPO mean for SEA’s startup ecosystem?
In my opinion, a SPAC is still going to need to find a business that is going to be appealing to US-based investors. It probably needs to be over a billion dollars in value for it to be sizeable enough to attract sufficient interest to have the desired liquidity.
As primary hubs for VC funding remain in Singapore and Jakarta, do you think we will see other parts of the region growing their venture ecosystem?
Singapore and Jakarta indeed remain the top two regions for VC funding. There’s a very robust venture ecosystem in Jakarta with a lot of Indonesia-focused funds.
On the other hand, most founders in Thailand, Vietnam, Malaysia and the Philippines are coming to Singapore to meet VCs. Meanwhile, the Singapore-based funds are going to Jakarta to meet Indonesian companies.
With regards to future developments in the regional venture space, there are some government initiatives to grow the deals landscape in Malaysia and Thailand. I do hope that there will be VC ecosystems forming in these countries, together with Vietnam. Ultimately, it takes time.
Also Read: 37 VCs to invest US$800M+ in Vietnam’s startups over the next 3-5 years
What are some future trends we can expect within the venture space as we move into 2021?
You will see some more companies from Southeast Asia go public as this would represent a natural path for the likes of Grab, GoJek and Traveloka.
More than that, there is a group of unicorns in Southeast Asia which have reached the “tipping point” in terms of their size, scale and maturity of the business. Some of them should start to think about going public. I would expect that over the next 12 to 18 months, we’ll see at least one more IPO come out of this region.
What are your investment plans for the next one to two years and what are the sectors you have your eye on?
We just closed an investment with Betterplace and all of the due diligence for that investment was done virtually. We’ve had to adapt our investment process to accommodate for the pandemic and have proven to ourselves that we’re capable of doing that. Therefore, even if we can’t get on a plane and travel, we will continue to make the right investments.
At Jungle, we tend to focus on two large categories — software and consumer consumption. Software is one of the industries that hasn’t been impacted much by the pandemic. Therefore, we will continue to be one of the strongest investors in software going forward.
For consumer consumption, we are seeing more consumers going online and they will increasingly transact through digital channels. Therefore, it could path the way for both e-commerce and direct to consumer (D2C) brands to grow.
We have also observed that second derivative beneficiaries of the e-commerce boom — payments, consumer credit and logistics — have seen a natural tailwind arise from the pandemic.
In essence, I don’t think our investment focus will shift or change due to the pandemic. We’ll stay consistent around consumer consumption and software verticals.
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Image Credit: Jungle Ventures
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