With its plans to expand into South and Southeast Asia, Singapore-based private equity firm Prestellar Ventures is looking at launching country-specific micro-funds in the region. The India-focused fund is already in talks with local partners in countries like Sri Lanka, Nepal and Vietnam for local funds and investments.
Last year, Prestellar had launched a $100-million fund backed by CG Corp Global, a Forbes listed billion-dollar conglomerate from Nepal; India’s microfinance institution Satin Creditcare; PE firm Frontline Strategy; and N.E. Group, a family business conglomerate from Nepal. With the first tranche of funds coming in at $25 million, a part of the remaining funds would be also be used for the micro-funds.
In an interview with DEALSTREETASIA, Rabindra Shrestha, Managing Partner at Prestellar Ventures, talks about the Indian and Southeast Asian funding environment as well as the investment firm’s expansion plans. Edited excerpts:
Your first two investments have been in Singapore. How do you view the Southeast Asian market for investment?
Southeast Asian markets, Singapore specifically, where we are based, compared to the Silicon Valley, is more nascent. But, in worldview, it’s fairly mature in Singapore with quite a few government-based incentives for startups. Singapore government has realised that this is a segment that they need to prioritise to keep the Singapore story continuing for the next 50-100 years. Traditionally they have been focused on shipping and banking as an industry, I see a lot of things happening there.
While we’re based in Singapore, we are definitely India-facing where the two companies that we’ve invested in Singapore are also looking at India as their growth market, that they need to tap into and see their inflexion point. However, India is a difficult market for a lot of companies to come. I think a lot of people have come and burnt their fingers trying to enter. That’s where we come in and our general partners come in.
Our General Partners have established businesses with the right platform for these startups to leverage to come into India. So we are an India-focused fund, even though we are based in Singapore.
How do you view the Indian market?
You are seeing a wave of activity in India, where initially people saw what was on paper. When we as investors look at markets to enter, we look at how high the ceiling really is, how big the opportunity is before we decide. So on paper, if you look at India, it’s a billion people with increasing wealth and fits that high ceiling, high potential, high growth market criteria. But, when people came in and pumped in a lot of money and valuations went crazy, they realised that doing business in India was not so simple, you cannot have the same working philosophy that you might have in the Silicon Valley.
So, there was a bit of correction, with people taking some down rounds and money dried up a little bit. However, now we are at a stage where the waves have levelled out and expectations of investors are more subdued. At the top end of the market, both investors and companies have matured. However, at the early seed stage, there are still a lot of interesting companies that are coming into play but it’s difficult for them to take that step from seed to Series A. Starting a business here is not too difficult, getting the first 5-10 clients isn’t too hard with friends and family. Going from that 10 to a 100 is where the difficulty lies, and that’s where we keep our focus area, which is pre-Series A, taking companies and growing their top line efficiently to make them more Series A ready.
Our fund focuses more on companies that have a ready team and a product and some revenues under their belt. They just need to align their strategy, and they need someone to pull them up and how we help to pull them up is that we focus our value-add on business development. Our value-add is that we want to grow their top line with our business development capabilities. We have four partners in the fund – Nepal’s CG Group, NE Group, Satin Creditcare and Frontline Strategy. So, all of us we have large businesses, and we wanted to see how we could invest in early-stage companies that are doing innovative things in our segment and how do we bring them to our platform and provide them with the resources and maybe in-house business.
As a late entrant in the market, how do you view the investment circuit from a competition point of view?
There isn’t lack of capital. Venture capital or startup investing isn’t a one-trick pony. There are various strategies that you can have such as ‘spray and model’, where you write a Rs 10-15 lakh cheque to 300 companies or you write a large cheque and be really focused on picking out the winners, maybe picking them up at a little later stage but really understanding the company. Our strategy is on business development growth and filling that gap in the cliff between seed and Series A. Support companies that took seed money and probably spent it unwisely or took a wrong turn and now they don’t have the money to correct themselves and a lot of good companies fall through that crack.
Do you classify yourselves in the private equity or venture capital bracket?
We don’t do seed, so we don’t do pure venture capital, we do pre-Series A and Series A, which depending on whether you’re doing the deal in India, Singapore or somewhere else, the terminology will change. We write significant but not huge cheques, typically $2-3 million per company, where we break it up into tranches. Where we can get to know the entrepreneurs and their vision, and aligning their strategy with us, providing them with the funding at various stages when they reach certain milestones, it also helps protect our investment.
Since you are looking at a presence in multiple geographies, does your focus area also change according to the region you are investing in?
It doesn’t really change according to geographies, obviously doing a deal in Singapore is very different from doing a deal in India, the process is very different. Because our focus is on companies in which we can add value from a business development standpoint, it narrows it down significantly for us. Based on our GPs in our network and the large board of advisors that also help the portfolio companies, we are focused on hospitality, consumer, financial Services, rural product and services, and education sectors. We’ve seen many deals with fantastic entrepreneurs in sectors in which we don’t consider ourselves to be experts in and we’ve had to pass.
The $100 million committed capital was from the promoters of the fund, will you also be looking at external funding?
It’s a $100 million fund but our first close was at $25 million, that was internally funded. Based on certain benchmarks we get the further $25 million and so on. We have got a lot of interest from geographies (other regional players) wanting to join hands like a Sri Lanka-specific fund. Then Nepalese investment banks that want to build their private equity and leverage our knowledge and processes. We also have potential partners in Vietnam. So, this $100 million now will be divided among sub-funds. It would be a joint fund management or a joint GP. For example, if it’s a commercial private equity bank in Sri Lanka, as fund managers they would provide local reach and fundraising capabilities. When we have funds in India, Sri Lanka, Nepal, Singapore and Vietnam that corridor, then it makes it very powerful to start leveraging the network all over the place. Even for our portfolio companies, there will be a lot of cross-border connects and capabilities to expand.
When can we see your first country-specific investment come about? And which countries are you targeting first?
In the next 12 months, we should have one or two, most likely in South Asia, maybe Nepal or Sri Lanka.
Would you wait for the funds to come about and then invest outside of India or Singapore?
We are studying these markets and we’ll take that call depending on the opportunity. The current fund has been very focused on India.
So apart from your micro funds, would you also look at external funding for your current fund?
There is a lot of interest in our fund, so we could get some external funding. We’re already in discussions for that. With India and Singapore, we are already seeing good traction as we can deliver on business development. So, this becomes our niche strategy and some investors are resonating with us and are holding talks for the current fund as it is. The micro-funds become an interesting way for us to expand our reach.
With expansion into countries beyond India and Singapore, how do you see the geographic mix in terms of investments in the next couple of years?
India will continue to be a focus. The ecosystem has its own challenges but the opportunity here is immense. Countries like Sri Lanka and Nepal, private equity is just touching there, people are just getting their feet wet. While there are angel investors, the actual science and art behind the investment isn’t there yet. This is why a lot of these banks are coming to us to learn how to position your fund to how that translates to initial diligence, to how that translates to deal structuring. So we need to have the right partners to do their bit for the local markets, but in India, the opportunity is much larger, we’re just scratching the surface.
In the next year or so, how many investments do you expect to make in Singapore and India?
We don’t differentiate between Singapore and India. Even the Singapore companies that we invested in are those that are coming into India. So the focus is to grow these companies for India. Singapore just provides a wonderful destination for the parent company because when larger investors come in, Singapore provides a better level of clarity. Structuring deals is much more flexible there. The instruments that you can use to structure deals is more flexible there. So, it’s more of a jurisdiction play.
And in terms of the number of investments?
We plan on doing one investment every two-three months, One a quarter is what we typically plan, but we could accelerate that. The reason why we say one a quarter is because we are quite diligent in our processes and we want to make sure that we are aligned with the entrepreneur. So over the next 12 months, we could do another two-three deals as well as topping up our current investments.
There are upcoming markets in Southeast Asia as well like Indonesia and Malaysia. Would you be interested in investing in those?
Indonesia is big, our potential partners in Vietnam are already active there, but again our general partners have some presence in Indonesia in the hospitality space. We want to be positioned as smart money and don’t want to claim to be experts in areas that we are not. That is why we need strong local partners wherever we go. Can’t have the view that you can just go in and invest in what’s hot. You have to be in the know and know the nuances.