Brijesh Pande, Founder and Managing Partner, ICT Fund I in a conversation with Techseen shares his experience as a venture capitalist in the Southeast Asian region. As he is actively involved in startup ecosystem in South Asia and Southeast Asia as an investor, board member and advisor to early stage technology companies, he discusses the changing landscape, challenges and evolution of enterprise technology startups across the region. Excerpts:
Techseen:What is your relationship with Tembusu ICT Fund I and Pepri Ventures? How does it connect with the software or enterprise technology sector?
Tembusu ICT Fund I is the only software focused venture capital fund based out of Singapore. I am the Founder and Managing Partner of the fund and in that capacity also own 50% of the General Partner (GP) of the fund through Pepri Ventures (my personal investment vehicle). The other 50% of the GP of ICT Fund I is owned by Tembusu Partners – a prominent Singaporean private equity and venture capital fund management company.
ICT Fund I
is one of only six funds selected by National Research Foundation (NRF) a department within the Prime Minister’s Office of Singapore, for a SGD 10 Million LP investment as part of the Early Stage Venture Fund (ESVF) II scheme.
Prior to managing ICT Fund I, I was Managing Director and Head of Private Equity at SBI Ven Capital, the overseas investment arm of a Japanese company called SBI Holdings. SBI Holdings was formally known as SoftBank Investments. In my previous role with SBI Ven Capital, I oversaw an asset management platform that invested across a number of sectors, including technology, financial services, clean tech etc.
Techseen: What was the rationale behind setting up a software focused VC fund in Singapore?
Our investment strategy is quite straightforward and focused. We only invest in software companies in Asia. We invest in private markets and the biggest challenge for investors at this stage is the post-investment management leading to an exit. When we were setting up this fund, we were very clear that in addition to strategic, financial guidance which most investors typically provide, out-performance would only occur if we were able to add operational value (which includes among others technical expertise, go to market, sourcing human capital).
Consequently, we decided to focus only on technology (ICT), and specifically software as it is a sector where our investment ecosystem has extensive investment, operational and strategic expertise. Our sector focus is even more relevant in today’s environment, as technology is pervasive across everything we do and is fundamentally altering every industry.
Within ICT there is no better area to invest than software as software/ deep tech has the best barriers to entry and most capital efficient.
Once we were clear on our sector focus it was important to determine which area in the start up ecosystem had the biggest opportunity. It is widely acknowledged that the venture capital or VC stage (typically Series A and B) as the area which has the largest gap in S/SE Asia. Other than a few emerging VCs, this gap was previously filled by family offices, HNIs and search (non-discretionary) platforms. Given our sector expertise in software and platform approach (bringing both strategic and operational expertise to companies), we felt well placed to outperform in the VC stage.
Techseen: How many people come to you seeking investments, and how many of them are able to convince you to invest in their startup?
We have evaluated more than 90 startups since our launch in May 2015. We have invested in two and are in the midst of making our third investment. We are interested in companies that have unique and defensible technology which our ecosystem we can help scale up. Many startups in the tech space, unfortunately focus on process innovation, “I can do this quicker, I can give you better reporting etc.” There are fewer companies that are doing real tech innovation and these are the ones that interest us the most.
We have made a conscious decision not to invest in digital consumer or consumer internet, where the barriers to entry are largely a function of scale (these businesses tend to be very capital hungry as well).
Hence, while we get a lot of inquiries from companies focusing on marketplaces, payments, social media etc, we typically pass on these opportunities.
The two investments that we have made are:
- Deskera, a business application suite offered via a SaaS model. Deskera offers ERP, CRMS, HRMS, LMS and analytics as a single integrated cloud product and is one of the largest and most successful cloud-computing companies headquartered in Singapore
- Vi Dimensions, which focuses on abnormality detection technology for security and surveillance. Vi Dimension’s technology has the potential to revolutionize smart surveillance globally as they are the first company to have solved for abnormality detection by looking at flow trajectories.
Techseen: Does your firm also guide startups and tell them about loopholes? For a startup, what are the usual takeaways after an investor pitch?
We are unlike a typical investment firm where people will talk more about transaction multiples or term sheets at the onset of discussions. Given our operational experience in technology, typically in talking to us startups can get a lot of insights on where we see the opportunities are as well as in specific areas of their technology. In-fact in many cases even before investing we connect them to our network, i.e. either big enterprise clients or prospective technology partners, because it allows us also to further ascertain their technology or go to market potential. So by the time we say we won’t invest, people have very clear feedback, that what the challenges we see that are there.
Techseen: The startups that come to you for investment, do you see any common issues or challenges that they face? Is there a difference in your approach as compared to other investment firms? How do you guide them?
The broad outline is similar. However it would be unfair to say a similar approach because depending on the kind of technology, the scale of development, the specific area they are focusing on, their challenges could be a whole lot different (especially for the early stage companies).
When I look at the video analytics company that we partnered with, the big challenges were re-looking at their tech development processes as well as migrating the tech from a CPU to a GPU environment (to make the solution more scalable).
We had to also help hire the technological manpower to achieve these objectives. This is very different to the kind of conversation that we have with Deskera, where we are providing access to our large corporate and tech relationships for expansion into new markets.
For slightly later stage enterprise companies, there are more commonalities especially in the challenges they face in their go-to-market strategies. Typically, enterprise product companies will have certain verticals, some segment it by industry, some by geography and some cut it both ways. Let’s say if there is a technology solution that works well for the BFSI sector then we would actively engage to guide the company in how best to target the market, how best to introduce our tech ecosystem to partner with them and how best to introduce our senior relationships in BFSI.
We take a very hands-on approach with our existing portfolio companies.
I know every VC says they are hands-on and every investment firm says they do very in-depth after-investment management, but most of the guidance is typically related to corporate governance or high level strategy.
However, for us the reason we chose a narrow vertical like software is because we understand the technology as well as how to take these companies to market. We have operating partners who are experienced software entrepreneurs and have helped scale small startups to large multinationals.
We even have a dedicated CTO as part of our investment platform, to help companies with their core tech development as well as their tech architecture. You will not find many VC funds in our part of the world employing full time CTOs and having operating partners with such deep operating expertise!
Techseen: Are there any challenges that you have faced, or any compliance issues from the government side?
The government is currently the largest supporter and enabler of the startup ecosystem in Singapore. We have an extremely supportive regulatory environment — Singapore is rated No 1 globally in terms of ease of doing business as well No 1 in IP protection in Asia. The Singapore government is also the largest investor in the startup ecosystem by providing numerous grants as well as direct investments and investments into early stage funds.
We are very fortunate, to have the National Research Foundation or NRF (a department within the Prime Minister’s Office of Singapore) as the largest investor in our fund as part of the Early Stage Venture Fund II (ESVF II) scheme.
Out of an estimated 40 plus funds that applied for this scheme, the NRF picked only six and we are the only ones who focus on software. We believe this is another great validation of our ability to incubate and develop the deep-tech companies in this part of the world.
Techseen: Has APAC been able to follow the Western culture when it comes to the startup environment?
We keep talking about western startup culture but I believe APAC (and especially countries like Singapore) are very well poised to continue becoming more prominent in the global startup ecosystem.
I believe there are a few ingredients that are important for any startup ecosystem to flourish:
- Favorable government/ regulatory environment
- Ongoing investments in R&D by educational institutions and corporates
- Access to the end consumer, i.e. you need to be in a region where you can access the consumer of the technology that you are developing
All of the above augur well for the startup environment to flourish in APAC, especially in Singapore, which is a great springboard for capturing the Asian opportunity.
I have already mentioned the continuing push by government/ regulators especially in Singapore to promote entrepreneurial activity.
Not many recognize that global research and development dollars into Asia across all industries are now comparable to the amount of dollars being spent in R&D in US and Europe. Yahoo! may not be the most potent example currently, but in 2000, Yahoo had zero global IP coming from Asia, and now some 40 percent comes from Asia. You take the likes of Cisco and Apple that have put huge R&D centers in India or the big Asian tech companies like Samsung, Huawei etc. all of whom are expected to continue investing billions into core R&D in Asia.
APAC is no longer just a cheap tech outsourcing market. Companies and educational institutions in APAC are becoming prominent in innovation leadership in certain areas and this has been a big momentum shift.
The biggest impetus to the startup culture in our part of the world is that Asia is now the epicenter of the global customer. More than 50% of the global mobile and Internet consumers are now in Asia. Emerging Asian enterprises are expected to spend three to four times more on technology than their developed world counterparts in the West.
Startup Genome tracks global startup environments and ranks the Top 20 countries for their overall startup culture. Only two Asian cities currently feature in the Top 20, Singapore at No 10 and Bengaluru (in India) at No 17. I think we are going to continue seeing the Asian cities becoming more prominent on this and I believe Singapore has the potential to make it to the Top 5 in a few years.
Techseen: What are the trends that you have seen in global tech VC sector?
There has been a significant amount of venture capital which has been deployed into global consumer tech in the last few years. The heady concoction of ample liquidity and promises of outsized returns have fueled the party so far.
But consumer tech is usually a big cash drain (given the cost of acquiring and retaining users/ customers) and typically ends up in a winner take all situation (or at best 2-3 dominant firms).
Concurrently, global capital markets are soft so there is less likelihood of multiple consumer tech listings at the valuations where investors would make meaningful returns. If investors slow down their pace of funding, this could significantly impact growth rates and viability of some of the companies. We have already started seeing a number of prominent investors marking down their big consumer tech bets by 50% or more. I feel that by 2017 there will be further rationalization in the global consumer tech space as investors will pay more attention to burn rates and cashflows
Enterprise tech/ deep tech which does not promise such heady returns as consumer tech is gaining much more focus and we are seeing an increase of activity in this area both by strategic players as well as VCs.
Techseen: How is Australia as a market for startups and investment firms?
Australia is an odd market. It is a huge late stage capital market, but there is a surprising lack of many VC platforms focusing on Series A and Series B funding. That gap has been filled by HNIs and family offices. We have also seen the early stage growth of many companies personally funded by entrepreneurs who have deep pockets themselves or who have good connectivity to the HNI circles to be able to raise the early stage capital.
We have invested in Australia before and another oddity is that the companies’ cost base will be 5-6 times more than what you see in this part of the world (it could be because many of them are self funded or by friends and family). Compared to India probably even 10 times.
So the burn rates of many Aussie startups (even in enterprise space) tend to be very high.
The government is taking steps to promote the startup sector, especially in tech and we have seen an increase in impetus in the last 12-18 months. However, in the global scheme of things Australia with about 23 million people is still a small market in terms of consumers and enterprise (albeit, per capita tech spend is high). We have met with a number of Australian tech startups that are looking to move to Singapore or similar markets where they have better access to the global tech marketplace.