Australian venture capital firm Square Peg Capital, which recently closed its first formal fund, came into the spotlight in Southeast Asia in 2015 when it joined private equity heavyweight TPG and Indonesia’s Emtek in investing in the region’s largest property portal, PropertyGuru.
Two years on, it recently made another addition to its portfolio in the region — restaurant booking app Chope — as the Melbourne-headquartered manager, which counts the world’s most valuable startup Uber, US-based payment processing unicorn Stripe and Israeli creative marketplace Fiverr, continues to take cautious baby steps in the region.
Against its traditional approach of trying to enter companies as an early backer at the Series A stage, Square Peg’s co-founder Paul Bassat told DEALSTREETASIA that the Australian VC was targeting later stage or Series B investments in Southeast Asia. In fact, after tasting success with its first investment in the region with PropertyGuru, Bassat reiterated that the firm, given an opportunity, would like to take part in future investment rounds in the property portal.
“For us, we will skew a little lightly in Southeast Asia. Probably in Australia and Israel a lot of this (investment) would be at series A stage but in Southeast Asia it would be more at a series B stage,” Bassat said. The firm is even mulling on having an office in the region to have feet on the ground here.
Square Peg’s caution with regard to early-stage investments reflects the challenge that confronts most international VCs that target Southeast Asia — although the region is considered an attractive market with 600 million people, with a GDP higher than that of India, impressive smartphone penetration and a young population, the countries are very diverse in terms of language, culture and customer choice, offering a fragmented market.
“It is incredibly hard to successfully execute in different markets in the region. They are so diverse in size, culture and language. They are individual countries that make up a region but the needs are very different. It is not like operating in the US where there may be a larger degree of homogeneity,” Bassat explained.
However, that also means the universe of opportunities for the Australian firm is a lot smaller. “Because you have to be a really good company to get to a Series B stage here. But typically the first investment for us in this part of the world would be a Series B,” he pointed out.
Before starting Square Peg five years ago, Bassat made his name as a successful entrepreneur who co-founded online job search website Seek Limited along with his brother Andrew in the late 90s. Seek is now listed on the Australian Stock Exchange and claims to be Australia’s number one employment marketplace.
The Melbourne-based venture capital firm was formed by Bassat and his co-founders, Barry Brott, who was overseeing venture portfolio at Melbourne-based family office Jagen, Justin Liberman, Principal and Chief Executive at Jagen, and Tony Halt, a former investment banker at Merrill Lynch. While the firm kept investing in startups globally and added a few more experts to its team, it eventually raised its first formal fund at $180 million earlier this year.
In October, Square Peg led an investment round in Singapore-based Chope that raised $13 million in its largest-ever round. Among other backers were C31 Ventures, Moelis Australia and return backers NSI Ventures, Susquehanna International Group, DSG Consumer Partners and Singapore Press Holdings.
“We really like marketplaces. They are an area we have invested very heavily in, not just in Southeast Asia but in other geographies as well,” said Bassat, adding that to be successful in Southeast Asia, there is more skill and expertise required. “We saw that with Chope, the guys were in nine cities,” he added.
Bassat says Square Peg adds perspective and objectivity, along with a good knowledge and understanding of marketplaces. “In marketplace business, we have a good understanding of what needs to be done to help build and scale a large marketplace business. But we are investors, we are not the guys doing the heavy lifting,” he added.
The venture capital firm also counts Uber among its portfolio companies where it invested two and half years ago, an investment which it calls an exception since it generally invests in marketplaces or tech investments and take substantial stakes. “We are a very small part of the company (Uber),” Bassat noted.
With regard to its latest $180-million fund, Bassat said even though it is a good pool of capital, it is finite and allows the firm to actively invest in Series A and Series B stages in other markets. Further, the pool also provides it with an option to continue to invest in its portfolio companies as it has done now four times.
“It is a very good chance with PropertyGuru if we get that opportunity (to invest) again,” Bassat said.