Unfazed by COVID-19 uncertainties, German early-stage technology investment firm Picus Capital is looking to increase its exposure in Asia, particularly in India.
The Rocket Internet co-founder Alexander Samwer-led firm, which has backed about five startups in India and three in Singapore, is looking to expand its wings to other Southeast Asian markets, and also China.
“We would be allocating 25 per cent of our investments to markets in Asia going ahead. Apart from Singapore and India, other markets that we are keenly looking at are Indonesia, Thailand and China. We may look at doing direct investments in these markets or in companies in Singapore that have gone to expand in these markets. In all, we are looking at 10 investments in Asia next year,” Picus Capital partner Oliver Heinrich told DealStreetAsia in an exclusive interaction.
Founded in 2015, Munich-based Picus Capital typically invests from $250,000-750,000 in each startup. It also does follow-up investments involving larger cheques. In India, the firm has placed bets in fintech, healthtech and edtech sectors, and is also bullish on the B2B SaaS space as more and more workplaces are working remotely.
It last invested $500,000 as seed capital in BASIC Home Loan, a Gurugram-based startup developing a platform for automating home loans for middle and low-income households in India. Its other portfolio companies in India include Lido Learning, Meddo, and MoneyOnClick.
On the impact of COVID-19 on businesses this year, Heinrich said, “There was uncertainty during the beginning and middle of the year. Companies took a bit more conservative approach when it came to allocating their investments. But we see the situation improving now. Good companies with strong fundamentals will always find a way to capture and raise capital at a reasonable valuation.”
Why did Picus choose to invest in early-stage companies?
We have quite an entrepreneurial way to look at early-stage investments, which also includes collaboration and not just allocating capital. Early-stage investments are obviously risky. But a part of that risk is taken away when we get closer to the founders. We understand them, and the journey that they are going through in their initial days as we faced similar issues in our early days. We enter as an investor into a company very early and then take a long-term view. As an early-stage investor, we can also have the maximum value-add, because at later stages it’s more about getting capital for expansion. So, we don’t have the typical issue of returning to the fund at an early stage. We have a 10-year plus investment horizon.
India already has a fairly large number of early-stage funds including Sequoia, Accel, and Matrix to name a few. How easy or difficult is it to get your hands on the best deal amid this competition?
It’s a good sign for an ecosystem if the best funds are interested in investing there. We are competitors but also partners in a way. Co-investments are a regular part of our business. As far as Picus is concerned, we usually get in earlier when it’s not relevant for some of the other firms. For instance, with BASIC Home Loan, we entered into discussions with the team even before the company was founded. So these are not really on the radar of other VCs. When it comes to pre-Seed investing, we take a bit of a different approach. It also comes from the development in Europe as a whole, where the market moved more from incubation to collaboration model over the past years. Our aim is to understand the founders better, think of a risk-return relationship, and attract the right founders who may not look at the incubation model for fundraising.
Some of the entrepreneurs we have worked with in Europe were those who had seen successful exits before. They did not really need our capital, but they appreciated the support we lend them in terms of helping them on a strategic level. We help them with our network when it comes to fundraising, also with hiring to ensure they attract the best talent. It’s good we operate in a competitive market in India as well. We see it positively.
Why India, and what’s your investment thesis for this market?
Most of the growth today is coming from Asia, India particularly. It is going to become a bigger challenge to live sustainably. Technology will play a large role here. India is uniquely positioned in terms of population and the quality of entrepreneurs. We are impressed by the aspiration levels of Indian entrepreneurs, the education they have received, and their drive to turn India into a developed country. There’s still so much to improve, not just in tier-I but also in tier-II and tier-III cities. We want to be a partner in this growth.
You spoke about the burgeoning growth in Asia. Which are the markets within Asia you are already invested in and which markets are you bullish about?
We have invested in companies that are based in Singapore. It serves as the start for the broader Southeast Asian market. We are looking to broaden our markets in Southeast Asia. For instance, Indonesia is a very interesting market, and then there’s Thailand. We may look at doing direct investments in these markets or in companies in Singapore that have gone to expand in these markets.
We are getting more and more interested in China as it is a big market in itself, different from what we see in Europe. We have set up an office in Bangalore. India and China are key markets in Asia because of their sheer population size, the speed of innovation. We actually want to shift some of our own investments more towards these markets.
How do you compare India and China when it comes to startup fundraising?
Both markets are on their own. Both are characterised by VCs setting up separate entities like Accel and Sequoia. China is much more heated, and you see exponential growth there. In India, we see similar opportunities but comparatively of a moderate level. The incredible stories of unicorns coming out of China are fascinating. At the same time, the market is also more opaque and complex. In India, companies are more interested in going international particularly the US whereas, China is a more closed market.
How do you go about choosing investments in India, and what is it that you like about Indian entrepreneurs?
We look for disruptive business models that are capable of creating category leaders, that have the potential of reaching 10-billion in valuation and above, and are self-standing. So, we are constantly looking for entrepreneurs with a big vision. In India, the themes that we are really interested in are healthtech, edtech, fintech. When it comes to people, we usually invest in people who have shown some kind of proven track record but that could have different parameters. A strong academic record is usually an indication. In India, in particular, there’s this incredibly strong first wave of really successful startups that have turned unicorns or even gone public. The ambition and hunger to create category leaders are higher in emerging markets compared to the more mature markets.
What will be your focus sectors in India?
Healthtech, edtech and fintech as these sectors are the basic needs of a growing population. We look at startups that serve some social purpose as well. We are not really interested in doing luxury goods. For example, our investment in BASIC Home Loan serves the purpose of affordable housing, which is aligned with the government of India’s goal. Same goes for healthtech. This is one sector that needs a lot of innovation as healthcare costs are skyrocketing and increasingly becoming difficult for common people to afford. Besides, remote working has accelerated with the pandemic. This sector falls in the broad category of B2B SaaS. So these are some of the themes we will be looking at next year.
What impact did COVID-19 have on the startup ecosystem? Which sectors, according to you, will emerge as winners once this phase is over?
It’s a bit too early to talk about the winners. But we’ve obviously seen fantastic growth in anything that goes when it comes to remote work, and also remote health. Basically services targeting very basic needs. There was a lot of uncertainty in the market, during the beginning and middle of the year. We witnessed a slowdown in funding, companies went into an emergency mode and took a bit conservative approach in allocating their investments. However, the market has come back quite significantly and VCs are now more bullish. All the business models that have had unit economics in place have fared well. We also expect valuations to go up again in 2021. All businesses must grow. Good companies with strong fundamentals will always find a way to capture and raise capital at a reasonable valuation.