AngelList-backed iSeed has launched a new micro fund for Southeast Asia, marking its entry into the region.
The fund is led by Wing Vasiksiri, a former AngelList and 500 Startups investor in the US, who will oversee the fund’s investments from Bangkok. iSeed SEA will write cheque sizes in the $100,000-250,000 range across 20 to 30 companies in Indonesia, Singapore, Vietnam and Thailand.
The firm declined to reveal its fund size but said that it has reached its first close and has begun deploying into two companies. It plans to fully close its fund by the end of this year.
iSeed’s entry into Southeast Asia comes at a time when COVID-19 is hurting fundraising prospects for many founders in the region. Travel restrictions are just one part of the problem. Southeast Asia’s seed capital remains limited and is quickly drying up due to an overwhelming amount of venture money raised at the pre-Series A to Series A levels.
“Some of the first generation seed funds are raising subsequent larger funds – like $100 million funds. If you’re investing from a $100 million fund, it’s very hard to be a seed fund. You kind of by definition, have to move downstream to do Series A investments. So we saw this gap open up in the market,” explained Wing Vasiksiri, Managing Partner and co-founder, iSeed SEA.
Vasikiri also observed a number of inflection points in the Southeast Asian ecosystem – such as the rise of unicorns like Grab and Gojek, the openness among local talent to embrace entrepreneurship, and the region’s relative nascence compared to more “proven” markets like China, India and the US.
He also cited iSeed’s connection with AngelList and multiple US and Indian founders and partners as a key advantage for the firm – something few Southeast Asian investors have at the moment.
iSeed SEA boasts a strong lineup of limited partners including AngelList’s founder and chairman, Naval Ravikant; Snapdeal’s CEO and COO, Kunal Bahl and Rohit Bansal respectively; Thumbtack’s founder, Jonathan Swanson; AngelList partner, Jake Zeller; Better Tomorrow Ventures founder and general partner, Sheel Mohnot; and DSG Consumer Partners founder and managing director, Deepak Shahdadpuri. Its anchor LP is AngelList US.
iSeed’s foray into Southeast Asia follows the launch of its debut India fund in May, which adopts a similar strategy of writing “micro-seed” cheques of about $150,000 across 30 early-stage companies in the market. The fund is led by Utsav Somani, who first brought AngelList to India.
Edited excerpts of the interview with Wing Vasiksiri, Managing Partner and co-founder, iSeed SEA:-
We understand that COVID has been a pretty rough time for many seed investors, who usually depend significantly on face-to-face meet-ups to do investments – more so than other stages in fact. How has this season been for you?
We’ve actually got pretty comfortable making decisions and investing over Zoom calls. It’s not ideal, but we’ve been able to build up enough conviction through our process where we’re comfortable deploying cheques after a few Zoom calls. We’ve already committed to making four investments, three of which we’ve never met the founder in person. So two investments are already closed. One is in Indonesia, one in Singapore. The other two we’re in the middle of wrapping up now.
I am currently based in Bangkok. The plan was to move to Singapore, but what I might end up doing is travelling between Singapore, Indonesia, Vietnam and Thailand instead of permanently moving there. We’ll see how that shakes up after COVID.
Do you see yourselves setting up satellite offices? Or is Zoom going to be the way forward for venture investing?
I think given that we’re at the seed stage and cheque sizes aren’t as big relative to Series A rounds, we’re very happy to stick with Zoom and run the fund this way. I think that’s the case for many funds operating in the seed space now. Cheque sizes are smaller, rounds are smaller, you have to move quicker, and that’s why we think in the seed space, it’s fine.
In the Series A rounds, however, I think it gets a lot more complicated. Funds will be hesitant to write multi-million dollar cheques if you haven’t actually met the founder and spent a lot of time with them. Doing stuff over Zoom allows us to move much quicker than other funds who might have to or are mandated to meet founders in person.
Can you take me through the genesis of iSeed SEA?
So it started while I was at AngelList. I was on the venture team at AngelList in the US. Utsav [Somani] was running AngelList in India full time, and he still is, and we got to know each other as colleagues.
Utsav had helped bring the AngelList model to India and it’s been wildly successful there. They’re the most active seed investor in the region. We worked on a few projects together, one of them being researching Southeast Asia as a potential expansion spot for AngelList itself. We talked to a lot of founders and investors and built up a lot of conviction in the region. Through our conversation with founders, we learned about how some weren’t happy with the current state of the seed market. We heard that funds would take forever to do due diligence on a deal, and not give founders a straight answer. Some funds also offered very restrictive term sheets.
On the investor side, we heard that a lot of the capital in the seed stage was also drying up. The first generation of great seed funds – some of which are raising subsequent larger funds like $100 million funds. If you’re investing from a $100 million fund, it’s very hard to be a seed fund. You kind of by definition, have to move downstream to do Series A investments. So we saw this gap open up in the market.
What about the timing?
Timing-wise, what really excited us was the lack of capital in pre-seed and seeds. Seed funds are moving downstream and more global funds are paying attention to Southeast Asia. India has been a proven region somewhat, and we saw some interest emerge for Southeast Asia.
Then, we saw elite companies start to emerge. So these are the big unicorn companies in the region. There have been a few liquidity events. We’re still hoping to see a few more, but we think that once Grab and Gojek IPO, there’s going to be a huge influx of capital, knowledge and talent into the region. We also see a lot of mature companies starting to reach that unicorn stage.
Finally, the problem related to the lack of talent in Southeast Asia was starting to change. A lot more people educated in the US decided to move back to Southeast Asia. We talked to a lot of people who decided to go work for Grab and Gojek instead of going into consulting.
All these factors gave us the conviction in the region to launch a fund here. And that’s really why we started iSeed Southeast Asia. So the fund itself is purely focused on Southeast Asia, all of our investments are going to be in Southeast Asian companies, with a particular focus on Indonesia, Singapore, Vietnam, and Thailand.
We’re beginning to notice a number of seed investors that tend to take on emerging markets or international focus paying more attention to Southeast Asia. Do you think the dynamics of seed investing is going to change?
Yes, we see that start to happen and I think that’s largely due to YC Combinator. YC has been accepting more international companies and that’s really where investors have learned more about the region. I saw this firsthand because we ran a bunch of funds purely to invest in YC Demo Day companies. We started to see more companies being accepted from this part of the world that increased investor interest.
Overall, I think it’s a net positive for the ecosystem. The more capital, the better. It allows founders to start more companies and run more experiments. We want more seed capital here, we want more funds to turn their focus here. That’s one thing that’s unique about our fund as well – very deep ties in the US and in India. In one of the deals that we did, we actually brought in a few funds in the US who we’ve worked with or are close to, and they trust us to join this deal with us. So increasing attention from US investors to Southeast Asia is a big part of what we want to do.
A lot of our LPs are partners at different funds or founders in the US who are kind of looking at our fund as a beachhead into the region. They’re curious about the region, they want to learn more, and they’re doing that through our fund. So I think overall we want to raise attention, raise more awareness of the region, get more seed capital and really help the ecosystem grow that way.
One thing about the seed ecosystem is that seed rounds are typically more collaborative. So funds will pull in other funds to co-invest. And that’s because, at the seed stage, it’s very risky and having other funds in with other expertise, significantly de-risks that investment. So if you have a US fund who has a US network, along with a Singapore fund and an Indonesian fund, you get to draw from all their expertise and that de-risks investment significantly.
It’s not really the case for a Series A round where at that point, funds are really fighting for allocation. They need to get their 20% dip. But at the seed stage, there’s definitely more flexibility and being collaborative, co-investing with different funds. And that’s the kind of environment that we want to help foster.
Can you share more details about the Southeast Asia fund?
So we’re not talking publicly about our fund size. We’re still actively fundraising and have done the first close. We’ve made investments and we have some great LPs involved. In terms of the fund itself, it’s very similar to the India fund. It’s a separate entity, so it’s a completely different vehicle. But I think that the investment style will be similar in terms of cheque size and the number of bets we make. We have an average cheque size of about $100,000- 250,000, and we plan to invest in 20 to 30 companies for first cheques. The investment time is going to be two years. So typically, we’d make an investment every month. We’ll be deploying pretty quickly and we’ll see how it goes from there.
How does your LP base look like?
All of our LPs so far have been individuals. These are basically founders, high net worth individuals or partners from other venture funds. We have one exception which is an institutional fund, the AngelList fund. They’re one of the only institutional backers we have in this round. Apart from that, it’s basically all operators and we’re very intentional about that.
We wanted to get a good group of investors involved. People who would be able to add value to a portfolio company if needed, so we can make strategic introductions for a portfolio to founders for know-how, partners at different venture funds for access to downstream capital. We do have quite a few other venture fund partners who have invested in the fund using us to “scout deal” and to learn more about the region.
How has the fundraising progress been like during COVID? Which markets are you raising from?
We haven’t had any LPs in Southeast Asia. They’ve all either been in the US or India. A lot of this is from relationships that Utsav and myself have built up over time. The conversations have been going very well. We haven’t found it too difficult to raise during a pandemic, just because we’re not targeting institutions. When you’re talking to individuals, family offices, high net worth people who have deployed capital into the asset before, they know what venture capital is, and they understand the risks involved. It’s much easier to be able to sell them and get them excited.
The story we’ve been pitching has very much been the story of Southeast Asia. This is the first time a lot of our LPs are really thinking about the region. We do have to kind of educate them on what’s going on. One thing that’s been exciting is that I’ve been very surprised by the interest to invest internationally, especially in Southeast Asia.
So the US, India and China are kind of proven commodities. What that means is that it’s also very competitive for [these] markets right now. In the US especially, when I was there not too long ago, a seed round would get filled up very, very quickly. You have to move super fast, otherwise, you would just be left behind.
There’s a lot of competition in each of those markets but it’s less so in Southeast Asia in the seed stage right now. Once LPs understand that I think it opens up a lot of interest in SE Asia, which I think is the next growth region. We’re four years behind India and maybe 10 years behind China. The way that our LPs are looking at this is that this is an exciting region, there’s a lot of potential, and you can get venture style returns that are uncorrelated to the US.
Do you get the sense that Southeast Asian VCs are looking more into seeds recently as well?
Yes, that’s definitely happening. The likes of Golden Gates Ventures, Monk’s Hill, East Ventures, Openspace, have $100-million-plus funds. So the core of their investments have to be in Series A or beyond, otherwise, it just doesn’t make sense from a fund size perspective.
I know for a fact that some of them also make seed investments. But the way we’re thinking about this is very similar to what happened in the US. As these funds get bigger and Series A rounds get more competitive, it’s harder to get an allocation. With Sequoia and Lightspeed in the region, there’s just a lot more competition around the Series A stage. So how do you actually get in deals? You have to build relationships with founders early. Founders have to pick you. And the best way to do that is to have a relationship with them, which is built over time, which is why we see these funds starting to write seed checks. It’s more of a relationship cheque with the founder, getting to know them for an investment.
Do you think the seed funding gap is even across all Southeast Asian markets though?
In my opinion, Indonesia is the most competitive market right now, just because it’s proven that it can exist independently from other ecosystems. There is a venture style return, and a billion-dollar company can emerge from just operating in Indonesia. I don’t think that’s necessarily going to be true or not yet in other markets. It’s a lot more difficult because of the smaller consumer base.
What about in markets like Thailand and the others? Are there enough local seed angels investing there?
There’s a huge drought in seed funding in Thailand right now. There’s maybe one true seed fund here that’s actively making investments in Thailand and that’s 500 Tuktuks. There’s a very weak angels scene.
What happened in the ecosystem in Thailand was that there was a huge boom around 2016-2017, where all these corporate venture capital arms (CVCs) started to emerge. So all the other corporates here wanted to do their own thing and got into seed investing and all these accelerators and funds started to pop up. But over time, I think all of them basically died. I don’t think a single one is still operating right now and that’s left a huge gap in the market. Many founders used to go to these accelerators due to these CVC programmes and get their seed funding that way. Now, we’re just seeing Thai founders not being able to raise any capital.
I talked to a lot of regional funds about this and they’re excited about Thailand as a market. They’re always asking to send interesting Thai founders their way. But the truth is, it’s very hard for Thai founders to go in and raise a good seed round right now because of a lack of capital and resources at that stage.