As COVID-19 pounded businesses across the globe this year, Malaysian private equity and venture capital firm Kairous Capital’s fundraising and expansion plans were derailed.
When the pandemic struck, Kairous was in the throes of raising its $100 million second fund. The fund, whose closing was originally planned for the first quarter of the year, not only missed its deadline but is also likely to be downsized to $50 million.
Kairous also had to postpone, to next year, its plan to open an office in Vietnam.
Now, as the pandemic storm ebbs, the firm is gearing up for the new normal and sees opportunities in Chinese firms looking to make inroads into the Southeast Asian market, said managing partner Joseph Lee in an interview to DealStreetAsia.
“We will help these companies to launch their products in Malaysia, and also help them fine-tune and localise their products to suit the market. The technology can be brought into other countries in the region after it has become successful in Malaysia,” he said.
For this, Kairous is planning to launch a Renminbi-denominated, late-stage tech fund (RMB Fund I) that focuses only on China. “Our existing LPs have committed half of this fund. The size is expected to be around 500 million yuan ($75.61 million),” Lee said.
He hopes to finalise the first close of the fund in the first quarter next year. It will focus on startups in later stages (Series C or pre-IPO), especially those of significant size and whose technology has been proven in the Chinese market and are now looking to enter Southeast Asia.
Kairous’s US dollar-denominated Fund I, which secured a final close in December 2018 raising about $20 million, invested in early-stage startups in Series A to Series B, focusing on fintech, insurtech, e-commerce, and digital health, among other sectors. LPs of the fund are mainly high net worth individuals, family offices, and corporations from Southeast Asia, China, and the Gulf region.
The downsized Fund II is also a dollar-denominated fund, which will focus on Southeast Asia and China. “We have secured some investors. We are halfway there. We are moving to do our first close as soon as we have a few potential investments in an advanced stage,” Lee said. “With Fund II, we’ll continue to go deep into these sectors [the same as Fund I’s]. We could also look into hardware technology and artificial intelligence.”
Fund II’s initial close is expected in the second quarter of 2021 and the final close in the first quarter of 2022.
China to SEA
Kairous’s main investment thesis is to invest in Chinese tech companies and export their technology and expertise to Southeast Asia. It also invests in Southeast Asian tech companies by referencing proven business models and strategies of tech unicorns in China.
Lee said Kairous will continue the strategy as it sees a trend of Chinese tech companies wanting to venture into Southeast Asia, especially amid the Sino-US trade tensions. Kairous could be a bridge, connecting the companies with Southeast Asian markets, said Lee, who has more than 15 years of experience in managing private equity investments in China and Southeast Asia.
“Lately we get a lot of inquiries from Chinese companies which want to venture into Southeast Asia but they don’t have a clue on how to do it,” he said. “Things could improve with a new US president but the tension between the two countries could remain.”
This trend is most visible in the technology sector because “it is the easiest [to replicate overseas] compared to all the other conventional sectors,” Lee said. He added that these companies usually have captured a sizable market share in China and are later-stage startups or within one to two years of an IPO.
Kairous will invest in these companies, work closely with them to create value, and bring their team and products to Southeast Asia, starting from Malaysia. They can also bank on Kairous’s knowledge in the capital market.
“It’s something that we are very familiar with. We have done many rounds with fintech and digital healthcare companies that we invested in previously,” he said.
For instance, Kairous facilitated the launch of SkinRun in Malaysia in October last year. According to the business information platform Crunchbase, Kairous invested an undisclosed amount in SkinRun’s Series A round in October 2019. TechCrunch data shows that Kairous had also invested $1 million in its seed round in July 2018. Skinrun uses AI face recognition technology and big data-based cloud algorithms to detect skin problems.
However, these firms will have to fine-tune, customise, and localise their products to meet the varied demands and cultures here. “Once the product has been endorsed by the mass market in China and has been fine-tuned with many rounds of revisions, I think it is the right time to bring them out,” he noted.
Working with startups
Launched in 2015, Kairous is a venture capital firm with a hybrid model as it has some PE elements such as its involvement in the post-investment value creation of startups.
Currently, 60 per cent of Kairous’s portfolio is in China, the remaining is in Southeast Asia and Lee hopes to maintain the 60:40, or 70:30 ratio, in the long term. “We think both markets are equally important. But due to COVID-19, we’ll give more attention to China in the short-term as it has fully recovered,” he said.
Kairous, which has offices in Kuala Lumpur, Shanghai, and Hong Kong, plans to open its Vietnam office next year, said Lee, adding that Vietnam is an emerging market with a sizable population.
He added that the firm will focus on Malaysia, Singapore, Thailand, Vietnam, Indonesia, and the Philippines. “For Indonesia, we’ll work with partners as we think it is too crowded with a lot of players there. We may not have the advantage to do it ourselves.”
As digitalisation becomes more of a necessity than luxury for businesses across the spectrum, Lee said this has opened up new avenues for VC firms to work with conventional corporations.
“We used to work with corporates to help them embrace technology; we think that there are more angles for us to work with the corporates now,” he said. “It’s a win-win situation. Companies get to fill the technology gap and the tech startups get to do more business with corporations or rely on the corporations to penetrate certain distribution channels.”
Most of Kairous’s existing investors are ultra-high net worth individuals, corporates, and family offices, Lee said. Its assets under management are close to $100 million.
Its portfolio companies in China include CareLinker, online blue-collar medical insurance platform dasurebao, crossborder payment service provider iPaylinks, and beauty AI developer SkinRun.
Its Asean portfolio includes Singapore-based e-commerce enabler and service provider Intrepid, as well as Malaysia’s largest parking payment app JomParking, Malaysia’s first and only digital payment aggregator PrimeKeeper, Malaysia’s First AI Analytics HR Platform pulsifi, and the Malaysian cloud property management system for boutique hotels Softinn.
It has also been cashing in on the growth of its portfolio firms. Despite the pandemic “we’ll make two exits [this year] — one in Hong Kong and one in China,” Lee said, adding that these investments were done in the early days when Kairous was less involved in investing in technology and focused more on private equity.
Editor’s note: An earlier version of this story incorrectly mentioned that Kairous Capital facilitated the launch of CareLinker in Malaysia. CareLinker has not been launched in Malaysia.