Malaysian venture capital firm RHL Ventures is increasingly scouting for investment opportunities in sectors beyond the boundaries of technology.
After focusing on tech and tech-enabled startups for the past four years, the venture capital and multi-family private investment firm is now also eyeing deals in non-tech sectors such as health and wellness.
“Especially in these times of COVID, we are paying more focus on healthy living and therefore have looked at it more from a wellness and prevention standpoint,” said RHL managing partner Rachel Lau. So far, the venture capitalist has not added any non-tech company under its portfolio.
“Tech deals are more hope and future, non-tech deals are based on track record and the ability to execute progressively. Valuations are moderate, and expected returns are a little better risk-adjusted. But obviously the big outsized gains still come from tech and tech has the ability to revolutionize the world,” said Lau.
RHL, which has invested in five startups so far this year, is hopeful of sealing at least three more deals by the year-end. “We have dry powder. So, I tell my team that it’s a good time to invest if there are good companies that can grow aggressively,” said RHL Ventures’ managing partner Raja Hamzah Abidin.
Yet, given the gravity of the pandemic, the firm will evaluate opportunities with “more depth”, added Abidin.
COVID-related disruptions have caused some firms in RHL’s portfolio to suffer downturns, but there are firms that have witnessed a surge in demand as well, like Signature Market. RHL had invested an undisclosed amount in the company’s Series A in January 2019.
The Malaysian e-commerce platform specialises in direct-to-consumer sales of healthy snacks. Signature Market, Abidin claims, has seen all its numbers — basket size, repeat customers, customer acquisition, and sales — reach an all-time high, more than doubling from pre-COVID levels.
For such businesses, the pandemic period has been an opportunity to expand and grow, he adds, which opens the door for interesting VC deals. “It also gives the option of an early exit given that the sector [consumer goods] is sexy at the moment. So, there are a lot more strategic conversations in the company,” Abidin said.
Eye on Malaysia
RHL Ventures, founded in 2016, is currently led by Abidin, and partners Rachel Lau, and Jo Jo Kong.
Its first fund was a $26 million, HNI-backed, Cayman Island-registered venture fund. Its focus is ASEAN-based startups and also small- and medium-sized (SME) enterprises. The fund invests in startups across ASEAN, but when investing overseas, Abidin says it has an eye for companies with a vision to expand into Malaysia.
One instance of this is Alami, an Indonesia-based sharia fintech startup, in which RHL invested last year, along with Indonesian VC Agaeti and Singapore’s Golden Gate Ventures. Alami has plans to bring its sharia-compliant B2B loans business to Malaysia — something RHL is helping to execute.
“So the angle is to co-invest with local-based VCs and at the same time have at the back of our mind opportunities to expand to Malaysia,” he said.
RHL’s second fund, meanwhile, has a specific focus on Malaysia. Launched last year, it has a corpus of RM100 million ($24.1 million), anchored by SME Corporation Malaysia, a government agency under the Ministry of Entrepreneur Development, aimed to back the country’s startups and early-stage SMEs.
RHL, which cuts cheque sizes between $200,000 and $1.2 million, is actively deploying from both funds. The first fund, Abidin said, is almost 50 per cent invested, while the second is still in early stages of deployment.
The firm has invested in around 20 early-stage companies so far, including Korean beauty e-commerce player Althea, and Indonesian wellness startup RIDE. Half the portfolio comprises Malaysia-based startups such as Atap, Rage Coffee, and HealthMetrics.
This year it invested $25 million in Vietnamese property tech company Propzy’s Series B. It also made an undisclosed seed investment in Indonesian social commerce platform KitaBeli, and a $1.1 million seed round in Malaysian healthtech startup Naluri Hidup.
With the Malaysia focus of both its funds, RHL says it is playing its part in building the local startup ecosystem. The country has been lagging behind regional peers in terms of VC capital investments in startups.
Malaysia startup funding accounted for a dismal 0.3 per cent of the $2.8 billion funding raised by startups in Southeast Asia in Q2 2020, show DealStreetAsia data. While deal count stands at a decent 18, the $7 million total deal value for the quarter was the lowest among top markets in the region.
The startup deal figures also seesaw on a quarterly and annual basis, a sign of instability and lack of maturity in the ecosystem. The recent political instability in the country has not been helpful either.
Abidin, however, believes the flip side of this is that the country’s founders have developed a knack for building sustainable and profitable businesses. “We do not have the most aggressive startups, but we do have well-run startups,” said Abidin
This resilience has helped the country’s startups cope at a time when the whole world is reeling from the pandemic. Malaysia, he claims, has seen very few startups shutting down or even suffering down rounds.
This quality, he said, would make Malaysian startups an appealing proposition for VCs going forward, given their new emphasis on sustainability over aggressive growth. “I think if you come in with realistic expectations of returns, and you expect things to be more profitable moving forward, or you expect a company that you want to be profitable, there are still opportunities in Malaysia,” he said.