Despite the recent failures of its portfolio firms Sorabel and STOQO, Jakarta-based venture capitalist Alpha JWC is sticking to its early-stage investment philosophy as it gears up to launch its third fund.
While the exact corpus of the fund could not be ascertained, industry sources aware of the development said the firm was targeting to raise between $200 million and $250 million for its third vehicle.
The proposed fund will put Alpha JWC among a handful of Southeast Asian VCs that have raised over $200 million for a vehicle.
Other firms that have raised $200 million or more for a fund in this region include EV Growth (250 million), Insignia Ventures ($200 million second fund) and Jungle Ventures ($240 million third fund), Gobi’s Meranti ASEAN Growth Fund ($200 million), while the likes of Vertex Ventures and B Capital Group have closed funds at $305 million and $821 million, respectively.
Jefrey Joe, managing partner at Alpha JWC, said that the firm has held early discussions with potential LPs about a new fund and expects to officially hit the fundraising trail next year. While he declined to disclose the target size, Joe confirmed that the proposed fund is set to be bigger than its second fund, which was closed last year at $123 million.
Alpha JWC launched its debut fund in 2016 that had a size of $50 million.
“We believe that the biggest return is actually in early-stage [deals] – pre-Series A and Series A. Historically, it is the stage that generates the largest returns for our LPs. So, that will be our focus,” said Joe.
Fashion e-commerce startup Sorabel and STOQO, a marketplace for small restaurant and hotel owners, collapsed under COVID-19 pressures after failing to evince further investor interest. Joe said it was a part and parcel of the venture capital (VC) game, and something no investors are immune to.
“Was there anything we can do? Without COVID, there would have been a couple of things we could have done, but with COVID, it [has] made things very difficult,” he said candidly. “COVID has had a lot of effect on investors and also there is the problem of due diligence (DD), which is hard to do.”
Focus on early-stage deals
Alpha JWC’s move to stick to early-stage transactions comes in at a time when venture capitalists in Indonesia are increasingly eyeing growth equity investments.
Firms that have launched growth funds in the past one year include East Ventures, Kejora Ventures, and MDI Ventures in Indonesia, and Openspace Ventures and Golden Gate Ventures in Singapore. Both Openspace Ventures and Golden Gate Ventures have significant exposure in the Indonesian market.
According to proprietary data collated by DealStreetAsia, in terms of value, growth funds contributed significantly to the $1.46 billion total funds raised by Southeast Asia-focused VC firms in the first half of this year. Among notable growth funds closed recently, B Capital raised $820 million in a bid to capture the burgeoning startup ecosystem in the region.
Even so, Joe remains convinced that the best way for Alpha to stay consistent is to carry on with its strategy that is proven – something he says has been reflected by the performance of its first two early-stage funds.
According to Preqin data, Alpha’s $50 million maiden fund, which has been fully deployed after investing in 23 companies, has recorded a 32 per cent internal rate of return (IRR), as of June 2020. Among its portfolio companies that witnessed considerable growth from this fund are peer-to-peer lending Funding Societies, fintech firm Kredivo, and taxation solutions SaaS startup OnlinePajak.
The success of these investments prompted Alpha to target a significantly larger corpus for its second fund launched in 2018, which closed at $123 million, and which the firm believed was necessary to top up on better deals.
In October that year Alpha invested $8 million into Indonesian coffee chain Kopi Kenangan, which counted as one of the biggest seed rounds in the region at the time.
The capital infusion allowed Kopi Kenangan to grow aggressively, which in turn enabled Alpha to rope in a host of international investors for the company’s Series A round in 2019 including Sequoia and Arrive, before topping up in the company in its $109 million Series B round earlier this year.
Other investments that Alpha clocked from its second fund were in capsule hotel Bobobox and B2B supply chain company GudangAda, which last secured $11.5 million and $25.4 million, respectively, in their Series A rounds closed in May this year.
Alpha’s second fund is said to be on track for an IRR of 78.93 per cent, according to the Preqin data.
Joe said the second fund is currently “among the best performing funds in the region”. He believes that the firm has found a sweet spot in the VC business, which it wants to continue to enjoy.
With its third fund slated to follow the same investment thesis with more dry powder at its disposal, Alpha expects to double down on its existing portfolio companies, while also opportunistically investing in new larger companies.
“That’s one thing that our founders and also LPs like. Because if we have a good company and can’t follow on our investment in them, it would be a shame because finding good companies is hard. So, when we find a good one, we need to have enough capital to really grow together with them by investing more in the subsequent rounds,” Joe said.
Road ahead: Year 2020
With STOQO and Sorabel winding up their operations amidst the COVID-19 pandemic, this year could pose a threat to Alpha’s impressive numbers.
Even as Joe conceded that the folding of the two companies was a “failure” on the firm’s part, he explained that one of Alpha’s metrics for success is the level at which the firm is able to help its investee companies reach the next level.
Take Stoqo for instance. Alpha was first a seed investor in 2017, then it helped Stoqo scale and raise its Series A round in 2018. That round saw the participation of international investors including Monk’s Hill Ventures and Accel Partners India. The startup by then had secured between $3 million and $5 million to facilitate its expansion plans. This, for Alpha, was “success in its own right”, Joe said.
“We believe that in every stage of the game there is a role for everyone to play. And the main role for every VC is to bring the company to the next level. It’s like a relay race, we pass it on the next investors to help the company together.”
Despite the COVID-19 pandemic wreaking havoc across various different industries, Joe said Alpha is not putting its brakes on its investment activity.
However, it is now putting in extra effort to spend time with its portfolio companies.
With a team of over 20 people, including 12 investment professionals to serve its 36 portfolio companies, Joe said the firm is well placed to spend significant time and energy with each one of its companies to navigate through the storm.
Among the things its team is doing for startups is helping them explore possible consolidations, partnerships, investments, and M&A.
“At the moment, we can’t force growth. So, we are really spending time with the companies to navigate through this situation,” he said.