Nicholas A. Nash
On January 09, Singapore-based growth equity investment firm Asia Partners announced the final close of its second fund at US$474 million, which is 23 per cent larger than the inaugural US$384 million fund. With the final close of Fund II, Asia Partners has reached US$1 billion in assets under management.
In an interview with e27, Asia Partners – which has backed well-known names like ShopBack and Doctor Anywhere –sheds light on its optimism regarding Southeast Asia’s thriving tech ecosystem amid global IPO hurdles. With seven new publicly traded tech companies surpassing a US$1 billion market cap by 2022, well ahead of their 2019 prediction, Asia Partners explores the unique factors propelling the region’s entrepreneurial and innovative surge.
The interview with Nicholas A. Nash, Co-Founder and Managing Partner, delves into the firm’s investment strategy, targeting sectors with untapped public company potential. Additionally, it highlights the significance of employee and advisory board involvement and addresses the fund’s approach to Southeast Asia’s diverse markets.
Edited excerpts:
Given the challenging environment for IPOs and fundraising globally, what factors contribute to Asia Partners’s optimism about SEA being a “golden age of entrepreneurship and innovation”? How does the firm plan to navigate the current market conditions?
We have shared a perspective on this important question for several years in our roughly annual Southeast Asia Internet Reports.
Also Read: Asia Partners’s maiden fund hits final close at US$384M
There are multiple mutually reinforcing data points that help drive our constructive view of Southeast Asia’s potential.
For example:
But, probably the most interesting data point is this: In 2019, we formally predicted that by 2029, there would be at least ten more publicly traded technology companies from Southeast Asia with at least a US$1 billion market capitalisation. By the end of 2022, there were already seven new ones — well ahead of schedule for our prediction.
This is not to say that every year — between 2019 and 2029 — will be equally conducive for IPOs. The IPO markets tend to follow a roughly three- to four-year cycle between over-valuation and under-valuation. The periods of over-valuation tend to lead to periods in which IPOs are harder, which then gradually melt away to periods where IPOs resume.
Technology companies from Asia with at least US$25 million in gross profits tend to be qualified to become public companies. Southeast Asia is home to a meaningful population of such companies – some of which we are grateful to have in our portfolio.
Asia Partners targets investments of US$20-100 million per deal. Could you elaborate on the specific sectors or industries within the region the fund is particularly interested in and why?
We find that Southeast Asia is closely following the pattern of China, which had its first technology IPO in the mid-1990s and then built an extraordinarily successful ecosystem over the next three decades:
A similar pattern is unfolding here in Southeast Asia, albeit roughly a decade shifted in time:
We are interested in investments across many of these rows. Still, we are particularly interested in rows where there is not yet a public company from Southeast Asia or not yet enough public companies from Southeast Asia. Our portfolio thus far closely mirrors that approach.
Interestingly, over 9 per cent of Asia Partners II’s capital is from employees and advisory board members. Could you share more about the significance of their involvement and how it aligns with your vision for the fund?
It is all about alignment. We want the vast majority of our savings to be in the same investments we make on behalf of our global limited partners.
Southeast Asia is known for its diversity in terms of languages, consumer preferences, and regulations. In what ways does Asia Partners plan to address or navigate these challenges as the fund continues to make investments in the region?
Southeast Asia’s diversity lends itself to two frequent ‘go-to-market strategies’ we find entrepreneurs pursuing. In strategy 1, the company focuses primarily on Indonesia, and in strategy 2, it focuses on the region, but often from a ‘home base’ in Singapore or occasionally Malaysia.
Also Read: Fintech funding in Southeast Asia hits a five-year low in 2023
We are very interested in seeing whether a third strategy will emerge over time, focused on single countries other than Indonesia, particularly as the GDP of each of the other five major economies grows.
With US$1 billion in assets under management, what are the fund’s outlook and plans for the coming years? Are there new initiatives, partnerships, or focus areas that Asia Partners is exploring for future growth and impact in Southeast Asia?
For several years, going back to our first Asia Partners Internet Report in 2019, we have been quantifying the Series C and D gap for technology growth equity in Southeast Asia.
Our strategy, again as articulated in our roughly annual Internet Reports, has remained quite consistent since our inception and is grounded in three core pillars:
- The long-term growth potential of Southeast Asia, a region with almost 10 per cent of the world’s population, and Southeast Asia’s increasing economic connectivity to the rest of Asia and the world.
- The rapid growth of innovative technology and technology-enabled businesses in the region, many of which are platforms with pan-regional or global aspirations.
- The scarcity of growth equity capital for these companies, particularly in the US$20 million to US$100 million investment size range, often described as the ‘Series C/D gap’ between early-stage venture capital and the public capital markets.
Observing how these three pillars interact and intersect – and, most importantly, evolve – has fascinated us greatly. For example, three themes which we have discussed in our Internet Reports, which we might highlight as interesting developments over the years, include:
- The increasing inter-connectivity of Southeast Asian companies with the rest of Asia, and indeed the world. Companies like Singapore-headquartered Shopback now operate in a dozen countries across three continents. SCI has operations across Southeast Asia and China, and RedDoorz derives virtually all of its revenues from Southeast Asia but has important technology development capabilities in India.
- The rising importance of enterprise software as an investment theme in Southeast Asia. We see enormous potential here, amplified by Singapore’s role as the ‘commercial capital of Asia’, as measured by the number of people on LinkedIn who have Asia, APAC, or Asia-Pacific in their job titles.
- The increasingly important role Southeast Asia is playing, and will continue to play, in the global semiconductor value chain.
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