Exclusive: Sudheer Kuppam’s Epsilon Venture aims to close $350m fund by Q1 2018

Sudheer Kuppam, Founder and Managing Partner, Epsilon Venture Partners

Pan-Asia venture capital and growth equity firm Epsilon Venture Partners which recently marked the first close of its $350 million fund – is targeting to hit its final close by early next year.

The firm, set up two years ago, was founded by Sudheer Kuppam, former India and Asia Pacific managing director of Intel Capital, the tech-focused venture capital and growth equity firm, is looking at investing at least a third of its fund in Indian companies and the remaining in North and Southeast Asian countries.

With four companies already on its portfolio, including Pi Datacenters, Farm Taaza, Cloudian and Ubiix, the Hong Kong-based investment firm is planning to invest in around 25 companies from its maiden fund.

In an interview with DEALSTREETASIA, Sudheer Kuppam, Founder and Managing Partner of Epsilon Venture Partners, talks about the maiden fund and the company’s future plans for investment. Edited excerpts:-

What is the status of your maiden fund?

We are a $350-million pan-Asia technology VC fund. We had our first close in March 2017 and we continue to do the fund raising. We expect to do a second close in Q4 this year and the fund raising to be completed by early next year in Q1.
We have been able to deploy the initial funds in about four portfolio companies across Asia, two of those are in India namely Pi Data Centres and FarmTaaza. The third company is Cloudyn, a Japanese cloud storage company, and Ubiix, a Taiwanese company providing cloud-based telephony.

As for regional allocation of the fund, what are your plans?

Ours is a pan-Asia, ex-China fund. A third of the fund will be deployed in India, 20 per cent in Japan, 15 per cent each in Taiwan and South Korea and the rest in Southeast Asia.

Which are the countries in Southeast Asia that you are keen on investing in?

In Southeast Asia, the two key markets for us are Vietnam and Indonesia as they have a critical mass, suitable demographics with a young population adopting various technology services. While those are key markets in Southeast Asia, in general, the way we look at the region is that unless the businesses can transcend the borders, it will be very difficult to scale the businesses. The key criteria would be that any business we look at should be able to transcend the borders, which would give them access to a population of over half a billion in the region. Otherwise deals in countries with a small population means the businesses will not scale and produce venture returns.

What is the average size of investment that you are looking at?
We are a stage agnostic investor, so it will all depend on how the portfolio is positioned. The four companies that we have invested in, three are early stage and one is late stage. For Southeast Asia also we will be stage agnostic. For now given that we will be focussing on fund raising, most likely our first investment in Southeast Asia will only happen after the fund closes, which will be some time in  2018.

Are there any particular sectors that you are keen on investing in?

By just looking at the four portfolio companies that we already have, North Asia, which is Japan, Taiwan and South Korea, our focus is on product innovation, which would include next generation technology sectors like autonomous driving, drones, robotics, Internet of Things, Cloud infra and storage etc. However, when you look at South Asia or Southeast Asia, including India, it is going to be pretty much services innovation. So that would be B2B, B2C, digital infrastructure such as data centres etc.

Are there a certain number of companies that you are looking to invest in through this fund?

We are really opportunistic while investing. We tend to see every opportunity out there, we have a robust pipeline in the region. Given that we are still fund raising we first want to finish that before we invest in any more companies. We already have a portfolio of four companies and through this fund, we would like to have around 25 companies. At the end of the day, we still have quite of investment time frame left  for the fund, so we want to focus on the fund raising. So, as and when we make progress we will also start fund raising. But, at this point, we are likely to be making newer investments only early next year.

What kind of LPs do you have on board, are there Indian investors too?

Since Epsilon is a Cayman domicile fund, given that a majority of Indian institutions they don’t have the mandate to invest in overseas funds, so most of our investors are foreign investors. We are talking to the whole spectrum of investors from sovereign funds, to large family houses, to high net worth individuals. We already have institutional backing, our anchor close was with a pension fund.

You have been a veteran investor, how have you seen the Indian investment ecosystem develop over the last few years?

In general, India goes hot and cold very quickly, for example a couple of our portfolio companies, when they were in the market for Series A fund raising, unfortunately they hit a cold patch where, despite having a lead investor they could not hire a co-investor for a very long time. Now fortunately the market is very hot, with a lot more money being deployed towards technology companies but it’s a lot more towards movable and B2C companies. I think at the end of the day that space needs to consolidate and go through dramatic changes from achieving operational efficiencies to unit economic based profitability other wise it is going to become very difficult for new investors to deploy capital in subsequent financing rounds. That said, the market continues to grow, and there are more people using broadband through smartphones and other digital devices, so from the current 350 million users, assuming this doubles in the next few years, it’s going to be a rising tide, it’s going to lift all the boats participating in this e-commerce ecosystem.

What are the prospects for growth in the north Asian region, since these are more mature markets?

When it comes to next generation technology, even if the market is mature, they are still newer spaces. For example, if you take Internet of Things, it’s a VAS space which is just emerging and has more and more companies launched and avail products in that space and any one innovating in that space is definitely rewarded as that space grows. Similarly, spaces like robotics, drones etc  you will see plenty of opportunity even in mature markets.

In India especially now there is a lot of dry powder with VCs, with slower deployment, how do you view competition in India?

My team and I have been operational  in India for more than a decade. Some of our portfolio companies, while we were running Intel Capital Asia, you can see Paytm, Snapdeal, Indiamart.com, Yatra, hungama.com they were all our portfolio companies, when any one hardly knew them. So that speaks for our expertise in terms of technology know how, and identifying entrepreneurs that can deliver. India is still a fantastic opportunity in terms of innovating and identifying opportunities where you can innovate in services. To that extent, with the four portfolio companies that we have, 50 per cent are Indian. With with 40-odd VCs with a lot of dry powder, we have still differentiated ourselves in a lot of pockets.

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