Catcha Group is planning to announce the first of its investment deals within the next six months, as the group departs from its private equity (PE) strategy to a venture capital (VC) play through its investment arm, Catcha Ventures.
The group’s game plan is to lead the investment rounds.
Catcha Group vice president, presiding over investment opportunities, Matthew Badalucco said the firm is seriously evaluating 10 companies at the moment, from Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
“We started scouting for suitors a few months ago. We have a lot of deals lined up that we think are amazing,” Badalucco told DEALSTREETASIA at the sidelines of the MaGIC Academy 2015 symposium.
“We have been seeing a lot of people, doing due diligence, but we just haven’t pulled the trigger,” he added.
The symposium is held by the Malaysian Global Innovation & Creativity Centre (MaGIC), designed for startup and aspiring entrepreneurs to learn from international and local speakers, workshops and clinic sessions.
On its plans to lead the investments, Badalucco shared that as Catcha was going to bear the risk in its investments, the firm may as well take the lead in its deals.
“Whether you invest $10,000 or $10 million, you have to do the same (due diligence) and come with the same conviction, and so we might as well take on a bigger risk to ride that story all the way to its natural conclusion,” he said, adding that as a deep value investor, Catcha Ventures has no investment horizon set in stone.
Badalucco said the firm is flexible in terms of its ticket sizes. “We are looking at seed, Series A and B, and we might consider Series C,” he said
Catcha Ventures believes that there is a dearth of capital in the Series B and stages, hence there ought to be opportunities.
Catcha Ventures was launched almost a year ago, towards the end of October 2014. It stated that it would be investing with a wide range of tickets sizes from $50 million to $100 million.
Badalucco said Catcha Ventures’ strategy is sub-sector agnostic – as long as it is a technology-related company, the firm is open to evaluating its potential.
“That said, we are especially interested in technology-enabled businesses and disruptions,” he noted.
Catcha Ventures is eyeing companies that use existing technologies in ways to exploit business models that could not have existed earlier using previous generation technologies.
“We are not necessarily looking for the next Google, we are looking for the next Snapchat,” he gave an analogy.
Commenting on the need for Catcha Ventures, under the group, Badalucco explained that the group was shifting gears into the venture capital scene.
“Catcha Group itself is an investment firm that has focused on the technology sector in Southeast Asia (SEA). For the vast majority of our existence, we pursued a private equity strategy. We took majority control of portfolio companies, have a lot of direct interaction with their management, we influence corporate strategies and go all the way till liquidating the investment,” Badalucco said of Catcha’s former investment strategy.
Catcha Group was formed in 1999 as a localised search engine business, and it began investing in online companies in 2006.
Catching up with the times
Sensing that developments in the startup ecosystem was catching on in Malaysia and the region in the past few years, Catcha saw more opportunities abound for a venture capitalist than as a private equity investor.
“The reality has changed. We realise the best way to invest and realise returns in this change is to pursue a more traditional venture capital style of strategy,” he said, adding that Catcha Ventures will make standard minority VC investments into technology firms across the region.
“So if you want exposure to a very specific risk or economic growth, you can buy an index fund that tracks that. Whereas as VC or PE investors, you purchase an entire asset, you inherit all the systemic and idiosyncratic risks. Business models and industries are only important in as much as they affect the potential profitability of the very specific investment,” he said.
He emphasised: “I shy away from saying that we will invest in a certain industry, because I can’t invest in the abstract industry, I can’t buy an index fund as a VC.”
As a guiding light, Catcha uses a framework to look for sources of inefficiencies.
“As investors, we only realise economic returns due to mispricing, so obviously if there’s a really high growth market and people know about it, it will push the assets prices to the level that reflects that growth,” he said, implying e-commerce assets.
What draws Catcha Ventures then, are markets that are not yet popular or are esoteric in nature. “We like B2B, enterprise solutions, perhaps even state or starting industries,” Badalucco said, though the firm is not weeding out high growth sectors like e-commerce.
To reach out to the founders, and aspiring founders of startups, Catcha Ventures has initiated ‘Catcha on the Ground’, a quarterly regional tour through which the firm meets and engages startups.
“I felt that we needed to be in the startups’ environment, to get to know the founders. We go out to the markets under our coverage and let existing entrepreneurs, prospective entrepreneurs, students, bankers or engineers to talk about their idea for 15 minutes each,” Badalucco said, expounding on Catcha Ventures’ strategy on establishing relationships with entrepreneurs earlier on.
‘Catcha on the Ground’ has also a Demo Day event, which the group has brought to Jakarta, Bangkok, Singapore and Kuala Lumpur thus far.
Catcha Ventures targets SEA exclusively for its investments.
“We might go as far north as Hong Kong, but we really like the core emerging SEA region,” Badalucco said.