Fresh from securing $1.88 billion for its new funds, US and China-based venture capital firm GGV Capital is now ready to set up a base in Southeast Asia. The firm, which has over 50 unicorns in its portfolio, plans to open a Singapore office in the first quarter of 2019, managing partner Jenny Lee said in an interaction with this portal.
GGV was an early investor in Southeast Asia’s largest consumer internet company Grab that today commands a valuation of over $11 billion. The VC firm has of late been paying more attention to this region, which is home to over 650 million consumers. Earlier this year, GGV jointly led a $20-million funding round for CashShield, an online fraud management solution for mid- to large-sized enterprises.
The Singapore office will be the fifth for the VC firm, after Menlo Park, California, Shanghai and Beijing. Lee said the firm, which has over $6 billion in capital under management across 10 funds, has not decided on specific allocations for the region but emphasised that GGV Capital is “serious about Southeast Asia”.
The Singapore office will also act as a nearer gateway to India, another interesting market for the VC firm.
“I think India has always been an interesting market but it has been slow to realise its potential. For India, we’ll still be pretty cautious, but we see encouraging signs. For the consumer, whether it’s wi-fi or data cost, the price has been coming down quite a bit – that helps to boost internet access, giving rise to more e-commerce activities and transactions.
“Another is that the number of mobile users has exceeded 200 million which is good. And with the likes of Huawei and Xiaomi as well as local phone manufacturers, the device cost has also come down, which helps with smartphone penetration,” she said, adding that Singapore has many good entrepreneurs who hailed from India.
As for its investment strategies in Southeast Asia, GGV will be looking to invest in areas such as fintech, e-commerce and content/social space.
“We know what’s happening in the US and China and we can extend our global insights into Southeast Asia market. We’re also spending time looking at a lot of infrastructure play like fintech because we think that as we go cross-border, there will be a lot of opportunities in the fintech area,” said Lee.
With Southeast Asia’s different markets – and their varying regulations – and a plethora of players wanting to do payments and e-wallets, GGV is eyeing specific areas within fintech.
“So we’re looking more at the infrastructure back-end – what are the technologies, systems or products that could help facilitate this. Second, when you have cross-border transactions, security will be involved. So, fintech will be a big area that we want to spend time on, an extension of what we’ve learnt in US and China market and there will be pretty unique problems to be solved in Southeast Asia.
“Other verticals we’ll look at are social and content-driven platforms. I think Southeast Asia has some technology that’s pretty interesting – so we’re open to exploring new verticals that we haven’t done in the US and China. We are in exploratory mode but we’re committed to looking at deals in Southeast Asia,” added Lee.
GGV Capital raised a $1.88 billion for its funds in October, including $1.36 billion for the firm’s main funds, GGV Capital VII and VII Plus, $460 million for GGV Discovery II focused on seed and early-stage opportunities, and $60 million for the GGV Capital VII Entrepreneurs Fund consisting largely of company founders as LPs.
It had previously raised $1.2 billion in 2016 across four funds. Earlier this year, it closed its first RMB-denominated fund at RMB1.5 billion ($225 million).
Founded in 2000, GGV Capital claims to generate an IRR of more than 25 per cent. It has invested in 51 unicorns across US and China, where half of these were Series B or earlier-stage companies at the time of initial investments such as Airbnb, Didi Chuxing, Toutiao, Slack, and in Southeast Asia, Grab. Out of these 51 unicorns, 25 have gone public, such as Alibaba, Square, YY Inc., Zendesk.
Tell us more about the new funds that you’ve closed in October. Is there any difference in terms of the investment focus and strategies?
The structure of our fund is that it’s multi-stage, very similar to what that we had for fund VI. Discover fund allows us to invest in early-stage companies from seed to Series A, so that remains the same. For Fund VII, it allows us to come in from Series B onwards and write check sizes of up to $100 million. The strategy is the same in terms of stage.
Where will we invest? It’ll still be very similar to what we did for our previous fund, so we’ll still be investing in those verticals that are e-commerce, enterprise, technology. But what’s different [this time] is that we’re extending the lens within those verticals into Southeast Asia.
How significant is SE Asia to GGV Capital then?
We haven’t made up our mind as to whether to allocate 10, 20, or 30 per cent of the capital [into Southeast Asia]. We actually don’t make allocation by capital. For us, if we see it, we will spend time. We’re opening up our office in Singapore by 1Q 2019. That’ll be our fifth office, as we now have two in China, two in the US. So we are serious about Southeast Asia, that’s one. We’ll be hiring for the Singapore office and our team members of the verticals that we invest in will spend time in the region.
For e-commerce, we continue to look up and down the value chain in Southeast Asia from merchant acquisition to cross-border commerce because that’s the advantage we have from the global insights. We know what’s happening in the US and China and we can extend our global insights into Southeast Asia market. We’re also spending time looking at a lot of infrastructure play like fintech because we think that as we go cross-border, there will be a lot of opportunities in the fintech area. Southeast Asia is different because when we talk about the US and China, they’re homogenous in terms of payments and currencies, and the wallets and payments, there’re already a few big players there.
In Southeast Asia, every country is different, and many companies are trying to do payments and wallets, so you have different payment players and different currencies. The problem that the companies need to solve will be different from the US and China. So we’re looking more at the infrastructure back-end – what are the technologies, systems or products that could help facilitate this. Second, when you have cross-border transactions, security will be involved. So, fintech will be a big area that we want to spend time on, an extension of what we’ve learnt in US and China market and there will be pretty unique problems to be solved in Southeast Asia.
Other verticals we’ll look at are social and content-driven platforms. I think Southeast Asia has some technology that’s pretty interesting, so we’re open to exploring new verticals that we haven’t done in the US and China. We are in exploratory mode but we’re committed to looking at deals in Southeast Asia.
Which market in SEA interests you the most?
I think that when I talk about say, fintech, it’s not just about Singapore or Indonesia. We’re looking within the underlying sector. So we will look at those companies regardless of where they’re based. If they can solve those fundamental questions, that’s what we’re more interested in. We’re more interested in companies solving those particular problems rather than just going for the Indonesian play, or Singapore play.
In that context, we will tend to be a bit more pan-Asia.
How has the fundraising journey been for GGV Capital? Some reports noted that fundraising activities in China have seen a slowdown.
I’m the one that drives fundraising for GGV Capital, so I have first-hand knowledge for the fundraising journey as I spend time with the LPs. I would say that the bar for new funds and LPs to continue to support existing funds has gone up. If you look at China, the venture market in China has been around for over 20 years and we’re already onto our seventh fund with 18 years in the market. The new-generation funds in China were formed in 2005-06, so they have about 13 years of experience and are onto their third or fourth fund. If you look at Southeast Asia, a lot of the funds were formed between 2012 and 2015, are relatively smaller and about five to six years into it. If you look at it that way, you will have first generation funds like ourselves, second generation, and then the third generation – from China to Southeast Asia.
If you’re an investor or LP, you have a choice. You have data, you can get all the funds and see which one has made money. They now also have a way to do portfolio construction for the LPs because it’s all about asset allocation – do I want mid-stage or early-stage? Do I want more alpha or more beta? Ten or twenty years ago, there was no such track record or data but today, you do. Therefore, the overall bar for LPs to pick and support first, second or third-generation GPs has gone up.
The market is more mature today. Therefore, any GP who is in the market fundraising has to be very aware that they have to now find a match between where their fund is going, what they’ve performed, their strategy and trying to find LPs that are interested. Even for LPs, there are first, second and third generation ones, and have made money since they invested in our first fund. These LPs know China but they also saw the emerging promise of Southeast Asia. The first generation of LPs are ready to deploy in Southeast Asia, they’re more experienced and are not afraid of the market. They will be there to pick what they feel is an emerging sector in Southeast Asia. It could be from their second or third fund.
There are also new LPs who have never been in Asia or China but the returns are coming down for the rest of the world including the US. So they’re also looking to diversify their portfolio, so we’re seeing them make trips to Asia and explore the region. Another pool of LPs is those who are willing to leapfrog since they have missed out for the past decade, and they’re more willing to take risks and work with first-time GPs. These LPs are all institutional, so it’s just a way of how they think about risk.
We have seen established LPs who came late to the Asia market and they tend to go to Southeast Asia first instead of China because the Chinese market is seeing GP and fund structure maturing and starting to look like the US, where branded VCs will get to look at the good deals first. If you’re a first-time GP, you may not get access to better deals. In Southeast Asia, it may be viewed as a new area. So even if there are GPs, the fund size is smaller. That means that if Southeast Asia will truly grow, it has the room to grow for new managers to make it.
It’s a long answer but there is capital out there, although fundraising is now harder. You have to do more strategic thinking, positioning and then finding the right fit with the LP pool.
I recall our last conversation two months ago where you said you hadn’t exactly firmed up your plans for Southeast Asia. So what changed?
For GGV Capital, typically we’ll do first and then we talk about it. So the last conversation we had, we had not really firmed up whether to have an office and where to have it. The last few trips [to Singapore] were to spend time with some entrepreneurs. I have also partners who are visiting Indonesia and India. We want to go out there, feel the market first, look at the quality of the entrepreneurs and competitors.
So, we’ve come to the conclusion that the market is interesting enough, the quality of entrepreneurs has also gone up quite a bit relative to what we saw 5-10 years ago. We think that there is an opportunity but we have to be patient, so to do that, it’s not the fly-in model, we need to have our feet on the ground. Therefore, we made the decision to have our office in Singapore and build our team around. It will be largely led by the GGV Capital China’s office team members.
You mentioned India. What are your thoughts on the market?
I think India has always been an interesting market but it has been slow to realise its potential. Back when GGV Capital was looking at going international, we were looking at China and India but ended up doubling down on China because we think that the China infrastructure support and government support, the rate of internet access and the data cost, all that made it viable for new internet startups to grow.
For India, we’ll still be pretty cautious, but we see encouraging signs. For the consumer, whether it’s wi-fi or data cost, the price has been coming down quite a bit. That helps to boost internet access, giving rise to more e-commerce activities and transactions. Another is that the number of mobile users has exceeded 200 million which is good. Five years ago, it was 100 million in a 1.4-billion [user] market. And with the likes of Huawei and Xiaomi as well as local phone manufacturers, the device cost has also come down, which helps with smartphone penetration. The government looks like it’s also trying to make changes such as in payments. It’s an interesting market but we don’t know yet. But with our office in Singapore, it will allow us to at least be slightly closer to India. There are also a lot of Indian entrepreneurs in Singapore.
A top VC in China has threaten to pare back investments in the US if the trade war tension continues. So how does GGV view this? And will the trade war tension affect the IPO plans for some of your portfolio companies?
I’d say that’s a pretty drastic decision if you want to retreat from the US market. For us, we think that the US market will continue to innovate. It’s just that the rate of innovation may change or slow down. Historically, the US has been an area where there is a strong talent pool and it would take many years for the talent pool to leave the US. The US will continue to be a centre of innovation and talent level in the tech space – especially AI. Maybe China, Europe or even Southeast Asia will catch up, and eventually, the talent pool will equalise. But I think in the short-term, the US is still a very interesting area to be in. We’re cautiously optimistic that things will turn around but we’re not going to say we’re not going to be in the US, that’s too drastic – we have to continue to look for good companies.
Right now, we haven’t seen trade war affecting exits. The US market continues to be open, from an IPO perspective. If you’re a company and looking to list in the US, it’s going to help you from a branding perspective. The market is open, they can still list and be a public company – the trade-off there is timing. If the market is uncertain or choppy, then they have to trade off valuation for that period of time as compared to waiting another few years for the market to be more bullish to get a higher valuation. But valuation is not the main concern, the branding and internationalisation are more important.
What check sizes will you be cutting for Southeast Asia?
Our strategy will not change for the stage. Our latest fund is $1.88 billion, so we will deploy the strategy across Southeast Asia. If we come in and see that a company is doing very well in a Series C stage and has the potential to become a unicorn, then we will write a check from our later stage fund. If we see a younger startup, say in the food tech or agritech space, we can invest from the Discovery Fund.
The benefit for GGV is that I’m not competing with a $100-million or $200-million fund. I’m there to work with the ecosystem. If you’re a seed fund and have a great deal, we can work with you. If you’re a more mature fund and look to join in bigger rounds, we can come in and syndicate the round. We view our position in Southeast Asia as complementary and not competitive.
We hope that when our office is opened in Singapore, we can have more events to bring VCs and entrepreneurs together and find ways to collaborate with each other, making it a learning space for all of us. We will also be bringing some of our portfolio companies in China and US to meet the others in Singapore to learn and do better deals together.