Adapting to the markets: PE firms invest in smaller startup deals in SEA

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As more startups and young companies mature into businesses with required traction and good prospects, private equity (PE) firms hunting deals in Southeast Asia are quickly waking up to the opportunities provided by these smaller deals.

Among the PE firms that are already looking into the dealscape gap between venture capital (VC) and PE funding are US-based KKR and TPG – through its middle market and growth equity investment fund TPG Growth.

According to the KKR private equity director, SEA, Terence Lee, it is not surprising if a lot of traditional firms that usually do larger investments, are heading towards the same kind of discussions that KKR is having.

“We can’t ignore the trend we are seeing – that a lot of young businesses and entrepreneurs who can be very successful in the future. We are spending a lot of time trying to figure it out,” he said during a panel discussion at Wild Digital, a conference of tech heavyweights by Catcha Group in the past week.

Lee noted that for a firm like KKR, a lot of evolution needs to be done to update their investing methods.

It is clear that the PE firms are not going for very small or very early-stage type (of investment), but something around the Series C or D stage, he said, adding that it was a matter of time before smaller deals become a substantial part of the PE firms’ business in the SEA region.

“In SEA, or in Asia more broadly, what’s changed now compared to prior times is that the sizes of opportunities are a lot larger now. Companies that were previously below our radar screen, too small investments, are now in our sweet spot,” he commented.

Lee said that the markets are evolving faster than the traditional businesses PE firm have always worked with, and that technology was not their forte.

“We will be the first to admit that we don’t have the capabilities to value-add on the technology side of things; that’s what the startups and the entrepreneurs do very well. What we can help with is on the more traditional side of things that should not be overlooked, anything from setting strategy to ensuring sustainability of the management team, or time-old issues like logistics,” he shared.

KKR also tries to keep a portfolio approach when deal-hunting in the middle market space. “We will not categorise ourselves as technology investors; technology is one of the sectors that we invest in. Even for large funds, you want to be careful how you spread your bets in each sector,” he said.

As for themes observed, Temasek enterprise development group director Aftab Mathur said many of the Silicon Valley companies are moving to SEA after their Series B round.

As a director in the Singapore sovereign investment firm, Mathur was aware of what threat the influx of these startups could pose to the fund’s investment strategy. “Startups scale very quickly. Within six months they go from a $100 million pre-IPO valuation to a $1 billion pre-valuation. If we don’t catch them at that early stage, they will quickly scale up to become significant challengers to our businesses,” he said.

“We are trying to ensure we are working with the right VC funds, the right universities to make sure we are not caught off guard when the next series C or series D round happens.”

Like KKR, Temasek has also moved into the small and the middle markets, investing in the Series B stage. “In some cases, Series A as well, which is a large departure from what Temasek used to do,” Mathur said.

Mathur noted that Temasek was keen on some companies in Israel and wants to bring them to Singapore. He was positive on Singapore becoming a hub or “test bed” for new technologies aiming for a larger rollout in Asia.

Among the segment Temasek invests in or is looking at are, fintech, business solutions, Internet of Things and cybersecurity.

In May, KKR led its first Series A investment in Artivest – a $15 million investment in the fundraising platform.

While it has a joint-fund with Accel Partners  in the technology businesses for the past decade, KKR is now dipping into its own $98.6 billion assets under management for earlier stage investments.

American firm TPG, however, has its own middle market and growth equity investment unit TPG Growth, which targets investments in a broad range of industries and geographies, especially focusing on the US and large, emerging markets such as China, India, Brazil and Southeast Asia.

TPG Growth has $7 billion in assets under management and committed capital.

Also read:

Temasek’s Pavilion Capital joins KKR-led consortium to buy controlling stake in Ticket Monster

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IFC joins Temasek, Thakral Group in backing Jungle’s $100m second fund

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.