For all the havoc wreaked by the COVID-19 pandemic, the global health crisis could be the perfect breeding ground for future tech unicorns, according to Teruhide Sato, founder and managing partner of Singapore-based VC firm BEENEXT.
The pandemic, which has forced people to maintain social distancing, has highlighted the value of mobile internet connectivity. Additionally, from a business point of view, the economic slowdown has forced companies to be more cost-efficient and value-driven.
The combination of these two things are critical ingredients for a valuable tech company and are helping mould several newly formed startups in the region, Sato reckons. The scalability of these companies may not be so apparent right now due to constraints related to investments but will become acknowledged in hindsight.
“When we reflect after five years from here, I think we would most likely be saying that 2020 was really the great vintage year of these unicorns because they came up through this very difficult time,” Sato said.
“(After the pandemic) they will be raising $200-500 million for hyper-growth and the business will become a multi-billion-dollar business only in five or six years. I think that’s going to happen.”
Sato’s firm belief in this prediction has prompted his firm to continue to invest in early-stage companies, despite the downturn.
BEENEXT, which rarely publicly announces its deals, says it has closed five new investments in the past three months in Southeast Asia and India and is set to seal three new deals in the coming month.
Despite betting on small companies, Sato is no stranger to the tech giants.
He sits on the board of Indonesian e-commerce unicorn Tokopedia after investing very early in the company in 2015 through his previous company Beenos. His current firm, meanwhile, is a backer in soon-to-be fashion commerce unicorn Zilingo and Vietnam’s e-commerce company Sendo.
Sato also counts as a transaction partner of unicorns, having sold Kudo to ride-hailing decacorn Grab in 2017, as well as Midtrans and Coins.ph to Grab’s arch-rival Gojek in 2017 and 2019, respectively.
But Sato’s passion for early-stage companies stems from his pre-BEENEXT experience.
In 1998, Sato started a social commerce company called Netprice, which was later renamed Beenos. He spearheaded the company’s growth, raising a total sum of $16 million in 2000 before taking it public in Japan four years later.
The experience of building a business from zero opened his eyes to the pivotal role of sound mentors and investors for new businesses. This is precisely what BEENEXT, whose team of partners comes from tech entrepreneurship background, aims to be for its portfolio companies.
Many of its early-stage VC peers in the region have moved to set up more substantial funds to back bigger companies.
Operating partner Nao Ito said the firm will keep focusing on early-stage companies, as “there is always a need for early-stage founders to have a partner like us who understand the journeys of building companies from zero”.
Like its first fund of $80-million in 2015 and its $95-million second fund in 2017, BEENEXT’s third and fourth fund, closed simultaneously at a combined total of $160 million earlier this year, targeting early-stage tech startups in India, Southeast Asia, and Japan.
Differently to its previous funds, however, the firm has separated the pool of funds from which to invest in Japan, where BEENEXT sees a distinct opportunity in a country that has been seeing stagnating population and GDP. What Japan lacks in the consumer market, it makes up for in the corporate segment, and it is this opportunity that BEENEXT aims to seize through the $50-million All Star SaaS Fund.
Separating its Japan deals allows BEENEXT to dedicate a full $110 million to India and Southeast Asia, seen as the ideal markets for consumer-serving startups. It will look to double down on the two regions, where it already boasts around 120 investments from its previous funds, as it increasingly broadens its investment scope and horizon.
“We like business models like marketplaces or payment or finance where there’s a lot of accumulation of data from transactions, matching from payment so that we can plug in a lot of other revenue channels based out of this network or the data simulation,” Sato said. “Nowadays, of course, data is becoming more available elsewhere. So we do quite a lot of investment in AI applied businesses including services, IoT service, and others”.
The two new funds saw contributions from a diverse set of LPs. Sato explained that around 50 per cent [of the commitments] came from large corporates, tech companies and tech entrepreneurs in Japan, some 30 per cent from global institutional investors, mostly from the US, and the remaining from Southeast Asia.
Founders-first approach to investing
Interestingly, the fund also reserved some slots for a number of founders backed by BEENEXT that have exited parts of their shareholding in their respective companies.
“There are a good number of those friends who actually participated in our activities as LPs and I’m very happy to see this type of cycle because they’re very prominent entrepreneurs in the region,” Sato said, without naming the said founders.
The contribution of these founders to BEENEXT’s fund, Sato said, owes much to the sense of community the firm has built among its founders.
BEENEXT says it sees the founders community as a unique asset, while for founders, it gives valuable access to important experiences and learnings of fellow founders from various different stages and markets.
“We learned how to scale the organization structure, manage objectives and priorities, and fundraising,” said Dimas Harry Priawan, founder and CEO of home interior startup Dekoruma, who joined BEENEXT founders community in 2016.
“The advice we got not only from the BEENEXT partners but also from the founders, which we feel is really relevant because the founders are the ones who have done it. Some of them are far more advanced than us – those that are already at Series D and E stage. That is something we found really invaluable,” he added.
BEENEXT describes its approach as a partnership of, by and for the founders. This founders’ first approach, Sato claims, applies not only in the investment and portfolio management phases but stretches all the way to the firm’s harvesting events.
As of today, BEENEXT says it has landed 12 exits, including the high-profile deals involving Grab and Gojek, as well as the sale of Citrus Pay to PayU in India.
For many VC firms, such exits would be a cause for celebration. BEENEXT, however, said it would have preferred to hold on to the investments longer, given its lengthy fund duration of over 10 years and the multiplying growth of SEA and India.
“If the business is let’s say a $100-million business today, then why not expect that they become 20x or 30x to become $2 billion $3 billion dollar businesses, riding on those big momentums. We want to witness that, so we want to actually stay longer,” Sato said.
However, Sato and his team are insistent that any decision on exits should be solely be made by the founders themselves.
“We are betting our time, but they are betting their whole life. So, we are here to give our opinions or advice of course, but at the end of the day, they will be the decision-maker in such a super important life-changing decision. Our stance is very clear on that,” he said.