Fund focus: Burda seeks early mover advantage as it targets Series B crunch in SEA

German media giant Hubert Burda is not the name that comes to one’s mind when discussing the pressing issue of the Series B funding crunch that confronts Southeast Asia. Yet, this is precisely the space that Burda is eyeing, and also seeking a first mover advantage, as it attempts to establish a stand-alone identity in this region.

Even as the media conglomerate has consolidated its international investments under a dedicated team – Burda Principal Investments (BPI) – and now runs it like a traditional fund, targeting, Europe, the US, and Asia as its main markets, it is Southeast Asia that will be its focus on this continent.

“BPI actually evaluated all three (China, India and Southeast Asia) markets when assessing our entry strategy into Asia, and concluded that Southeast Asia was the most interesting opportunity for us at this time.  There were several factors but the most prominent was the clear gap in Series B or growth capital in this region and our ability to be an early mover in this market,” said Albert Shyy, who was recently appointed to head the firm’s operations in Asia. (Albert had joined Burda from Gree Ventures).

Burda had already taken a series of baby steps testing the market, before establishing its base in Singapore. It is an LP in some of the leading VCs in this region, including Jungle Ventures, Kejora Ventures and Golden Gate Ventures. It has also placed bets on promising startups in the region with direct investments in Medical Departures, Thailand’s Priza and Vietnamese search service Coc Coc.

Shyy also said that BPI was open to investing in the Series B rounds of the portfolio companies of the three VCs for where it was an LP, and added that it was already in discussions with some of these startups. “Having access to their portfolio and being able to track these companies from an earlier stage onwards was one of the factors that led us to invest in these funds,” he said.

“Initially we are targeting US $3-10 million check sizes in this region, although we have written much larger checks in other regions – usually Series C/D stage deals,” he added.

 

 

Edited Excerpts. 

You were already a player in this region before you setup a dedicated office here. What got Burda to change its earlier strategy, and decide that it wanted to be more active player in Southeast Asia’s startup ecosystem?

Previously, we had been investing in a more distributed manner, with different group entities in each region acting separately.  Globally, Burda wanted to consolidate its international investments under a dedicated team, Burda Principal Investments, and run it more akin to a traditional fund in terms of approach and processes.

We’ve targeted Europe, the US, and Asia as our main markets.  In looking at the major ecosystems in Asia, we felt Southeast Asia presented the most compelling market for us due to its potential, rapid growth, and dearth of later stage capital, and thus set up an office in Singapore to enable us to be a more significant player here.

You are an LP in three of the major VCs in this region –  Golden Gate Ventures, Jungle Ventures and Kejora Ventures – does this mean that these VCs can look to you when it comes to their portfolio frims having to raise large ticket sizes of say US$5 million and above? What have been the learnings regarding this region, from being an LP in these funds?

We are certainly open to investing in their portfolio companies once they reach Series B, and in fact are already in discussions with a few.  Having access to their portfolio and being able to track these companies from an earlier stage onwards was one of the factors that led us to invest in these funds.  I think all 3 funds have different styles and preferences in this region, so being able to work with them as thought partners also helps us accelerate our understanding about the market.  For example, learning about their focus areas and investment theses in the early stage gives us a window into how trends are evolving in this market as there would typically be a 1-3 year time lag between their entry point and ours into a company.

What is your investment thesis for this region? Any specific sectors that you are keen on and why? Also, what are your ticket sizes like?

We are focused on B2C and consumer models – that has been the core strength of BPI and the broader group in general and dovetails well with the investment opportunities in this region.

In particular, we like marketplace models in almost any sector (we have invested in some of the largest ones in Europe and also some in the US including Etsy and specialty e-commerce plays where the branding and distribution can be differentiating factors for the company.  These are models where we feel we can add a lot of value through our portfolio as well as accessing the broader Burda network.  As with most funds we are of course opportunistic in other areas as well.

Initially we are targeting US $3-10M check sizes in this region, although we have written much larger checks in other regions – usually Series C/D stage deals.

Does the investments that you make, have to have a strategic fit for Burda’s media business, or businesses where the parent firm operates in?

No, we are first and foremost a financial investor although we would ideally like to leverage Burda’s presence to help these companies grow.  Down the road if there is a strategic fit for someone in the broader Burda group it could be a win-win for both sides, but that would not be a limiting factor in the deals we look at.

Burda is looking at doing Series B deals, a huge pain point in this region. How big is this an issue in this region considering that Series B and C rounds are critical for successful startups to achieve scale and become regional and global players?

Having spent the past few years as an early stage investor, I think it’s critical for companies in this region to have access to growth capital to realize the market potential they are going after.  There is almost always a trade-off between pace of growth and profitability, so if there are no growth stage investors in this ecosystem then early stage companies will naturally prioritize profitability for survival, which I think would slow the growth of this market by several years and dampen the type of returns we can expect.  We are slowly starting to see some larger exits emerge – such as Grab’s recent acquisition of Kudo –  and I expect this trend to increase as companies in the region receive greater access to the capital and resources needed to grow at scale.

When do you see more players emerge in the Series B and C space in this region?

Hopefully soon!  I do think there will be additional sources of capital in the next 1-2 years coming to the region as local investors raise larger funds and as investors from other regions are also starting to look more closely at Southeast Asia.  Everyone understands there is a gap at Series B and later, just as there was a Series A gap several years ago in the region.  Generating more exits and returns from companies here would accelerate this as later stage investors would be more comfortable with the exit pathways here.

Why Southeast Asia? Why not China or India first?

BPI actually evaluated all three markets when assessing our entry strategy into Asia, and concluded that Southeast Asia was the most interesting opportunity for us at this time.  There were several factors but the most prominent was the clear gap in Series B / growth capital in this region and our ability to be an early mover in this market.

Your current direct investments in this region  – Medical Departures, Priza and Coc Coc – don’t really have a common thread apart from the fact that they are in countries that may not be the first choice of VCs in this region. What made you take bets on companies in Thailand and Vietnam, against the traditional approach that leading VCs in this region have taken, which is looking at markets such as Singapore, Malaysia and Indonesia first?

I think they reflect Burda Asia’s stronger presence in those markets, as the regional HQ is in Bangkok.  They give us a great starting point in those markets, as venture investment activity has been picking up there as well.  We’ll continue to look closely at these markets, and will of course also increase our activity in Singapore, Indonesia, and Malaysia.

For companies raising capital in this region, what does Burda bring to the table in addition to capital?

We have been partners with visionary entrepreneurs around the world for the past two decades and have been able to support them through accessing Burda’s capital, brands, and sector expertise, particularly in consumer models such as e-commerce, marketplaces, social networks, and search/discovery.

Having been active board members through the growth capital stage for many of these companies, we bring a global perspective as many of our portfolio have also grappled with challenges in the areas of business expansion, international growth, and product localization.  To this end, we want to actively encourage cross-pollination across portfolio companies through initiatives like our BPI Portfolio Conference, where we invite all of our companies around the world to a two-day workshop to share best practices and to learn from experts within the Burda network.

Overall, how are deal flows in this region looking like? A common complaint that most VCs say is that while the dry powder is available, but the region is not producing requisite deal flows for deployment – do you agree?

I think this is a more prevalent view amongst early stage investors, and I feel that deal flow for Series B is actually very robust right now.  Keep in mind we are looking at companies who have likely raised Series A back around the 2014-15 time frame, which saw a very healthy number of companies being funded.

How do you see the startup ecosystem in SE Asia? Singapore had a huge lead over all other countries, but has it been able to build on it?

I think the Singapore ecosystem has improved significantly in the past few years but still has a lot of growth ahead, particularly in providing liquidity and returns to investors.  I think the next step is creating a virtuous cycle of having these entrepreneurs and investors reinvest their capital and know-how back into the ecosystem.  I think Thailand and Indonesia in particular also are seeing a lot of growth in their ecosystems.

You don’t operate like a traditional VC, which means you don’t have to follow the regular cycle of a fund life – of having to finish investing within a certain period, and then getting exits quickly, so that you can return money to your investors? Is this correct? So what are the metrics and parameters that Burda’s venture arm then sets for itself?

Yes, as we aren’t bound to a fixed fund life we do have the luxury of flexibility to take a longer-term perspective in our investments.  However, operationally we take a very similar approach to a traditional VC fund, and the BPI team is also incentivized in a similar manner, i.e. we share in the upside of successful investments and our metrics are based on producing financial return for the company.

Also Read:

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M&A more viable exit route as IPO market is tough: Dzung Nguyen, Cyberagent

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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.