Since 2010, Singapore-based venture capital firm Quest Ventures has been discreetly investing in e-commerce and internet economy startups in the region. Its portfolio today includes prominent names such as Carousell, Carro and ShopBack.
Through all this time, it has not needed to fundraise – until now.
Quest is lucky. It has a godfather – James Tan.
After close to a decade in China, Tan cashed out his stake in e-commerce company 55Tuan, packed his suitcase and returned home to Singapore.
“Because I’m a Singaporean, I wanted to do something in Singapore…By that time you had guys like 500 Startups who were all doing the same thing. My first investment was Burpple and that got the ball rolling,” said Tan.
That culminated into Quest Ventures, where Tan serves as the managing partner today. Through all that time, that 55Tuan pay-off has kept the firm comfortably afloat.
But Quest is nurturing big ambitions, requiring bigger capital.
The VC is now targeting an open fund of $50-100 million to invest in early-stage digital economy startups in Southeast Asia. It plans to invest in about 100 companies across the fund’s 10-year tenure, with ticket sizes between $500,000 and $1 million, and scope for potential follow-on investments.
Agtech is one of many sectors Tan is excited about.
“Simply because it’s something that Singapore is not well known for,” explained Tan. “I also believe it’s a sector with room for us to play in. Agriculture is the rice bowl of every Southeast Asian country that you can think of, so it’s also highly relevant.”
Tan added that there are gaps in the food and agriculture supply chain that can be plugged. He also challenges the notion that the “digital economy” sector has become too crowded for VCs to play in.
“E-commerce companies still have payments issues to solve, logistics that is broken, last mile shipping that can be more efficient, fraud to address, recommendation engines that can be optimised better. All of these things can be considered as digital commerce,” Tan said.
The VC has no plans to exit its companies anytime soon, he added. Quest Ventures’ portfolio of over 40 companies includes Eatsy, Ethis, 42Race, Glife, 99.co, SGAG, Spiking, Style Theory, Vulcan Post and Xfers.
Edited excerpts of an interview with James Tan, founding partner, Quest Ventures:
This will be your first time approaching external LPs for this fund. What kind of investor profile are you looking for?
The LPs we’re talking to include a whole range of private investors, from high net-worth individuals to institutional funds and corporates. By the end of June, we hope to have our first close with a few corporates on board. We’re targeting 20 per cent for our first close for our $50-100 million fund.
Why did you set a range for yourself? $50-100 million is pretty wide.
We started off thinking that $50 million should be enough with the 40 or 60 deals that we wanted to do. But I think we can go beyond that.
Your ticket sizes are pretty small, which means you’re probably going to do a lot of deals.
Not really. Maybe about 100 deals? Over the life of a 10-year tenure, I think that’s still manageable. 100 deals are still less than half of what Y Combinator does in a year. Y Combinator does 200 deals in a batch, and they do something like two batches a year. Sequoia is usually associated with spray and pray, but they do over 100 deals a year too. I think there are enough good deals to go around.
But we’re entering a stage in Southeast Asia where the ‘digital economy’ sector is getting very crowded. Do you really think there are still opportunities in this space?
I don’t think it’s crowded. Cars is crowded, but there’s still room to innovate, that’s why there are electric cars. We are very careful that we don’t invest in tech for the sake of tech. All this deep tech stuff that you hear, some of it is really very sexy but there’s no practical use case for it.
Imagine the likes of Carousell with tons of data. Some of these new AI companies go to them and say I have this new sexy algorithm, can we sell that or work with you to analyse your data? If I were Carousell, why would I use your services when I can employ AI scientists to do the deep diving for me?
It’s not that we’re not looking at deep tech but in Southeast Asia, there are so many real-life problems to solve that you don’t need to do blockchain or adopt AI. E-commerce companies still have payments issues to solve, logistics that is broken, last mile shipping that can be more efficient, fraud to address, recommendation engines that can be optimised better. All of these things can be considered as digital commerce.
What other sectors excite you right now?
Agritech is one of them, simply because it’s something that Singapore is not well known for. I also believe it’s a sector with room for us to play in. Agriculture is the rice bowl of every Southeast Asian country you can think of, so it’s also highly relevant.
Let’s take vertical farming for instance. After planting, where do they go? Do we plant at volumes or not? We need to get the supply chain ready first. When it comes to sourcing, farmers may not be using healthy fertiliser and are getting ripped off by all the middlemen in between, shipping from Ipoh all the way here. So why isn’t there a Meicai [a Chinese startup that helps farmers sell vegetables to restaurants] equivalent in Singapore that does the same thing?
You’ve invested in a number of internet companies like Carousell, ShopBack, 99.co, Carro. When did you start making those investments, and what got you into venture investing?
I began investing around 2010 onwards. I got into venture investing because I was in e-commerce myself in China. We cashed out and because I’m a Singaporean, I wanted to do something in Singapore. I knew I wasn’t going to stay in China forever. After 8-9 years in China, I decided that I wanted to build something similar here, and by that time you had guys like 500 Startups who were all doing the same thing. My first investment here was Burpple and that got the ball rolling. I decided after a while that I didn’t want to do it under my name, but under a corporate structure so I could grow a brand.
Your first investments came out of your own pocket. How much have you invested since?
(laughs) I can’t say that! Okay, if you imagine every angel investment is about $50K or less. Multiply that by the 70-plus investments that we did. There were also follow-on investments from there, so you do the math. My Chinese partners had also put in some money into these ventures.
What kind of exit opportunities does a company like Carousell have?
When we go into any company, our stand is that we go big or go bust. This means that one day if they go bust then, we say thank you, it’s been a good journey. But if they go big and they want to IPO or M&A, it’s up to them to decide what they want to do with their company.
I’m happy to say that until today I’ve not exited any company, and we don’t plan to exit anytime soon. There’s also been no pressure to exit because we’ve not had to report returns to anyone. It’s been a good bet, I’d say. If we had exited our investment in Carousell like some angel investors did, we’d probably have cried.
The IPO market isn’t looking too great this year. In fact, it will be more surprising if anyone lists at all. Are any of your investments seeking public listings yet?
(laughs) I can’t comment on that. I’d rather have them speak for themselves on this.
You previously listed 55Tuan at the NASDAQ. What was the process like for you?
The process can be very uncertain. Even for my own IPO, we were just a week ahead of ringing the bell at NASDAQ and everything was called off. We couldn’t get enough buy-in at the roadshow. We had to wait for the macro (risks) to fade away first. At that point in time, the government in China released a few documents. One of them was about how there was too much fraud. It was so bad that it practically froze the IPO market for the next one year or so. I doubt the SGX would do anything like this to Carousell or any Singaporean company but for us, we didn’t know what the investment bankers would say and whether they could find enough money to make this happen.
I heard something similar happened to M17 – they went all the way to the trading floor but at the very last minute everything got called off.
For us, it didn’t happen on our first attempt, so we waited over a year. The second time we tried, we were already in New York for five days or so before the ringing of the bell. Two days before that, we still didn’t know whether it was actually going to happen. Two days!
How did that happen?
Let’s say, you have a target to raise $40 million in the market. But at that point in time, you only have $35 million. There’s $5 million left to go. Now the question is – do you want the whole world to know that James Tan topped up $5 million? It’s not so easy to raise $5 million even. Who are you going raise this money from? Ideally, this investor should be an institutional investor with credibility, not just some man off the street. It’s not so easy to find this in 48 hours.
Uber and Lyft are going to IPO soon. What kind of things would Grab and GOJEK be looking at when they list?
Short of analysing their S1 statements and seeing what their unit economics is like, we will be cheering for them to do very, very well. Because if they fail to do well as global players, they probably won’t stand a good chance as regional players.
Let’s say their shares are $1 at the point of listing, and I’m only a regional player at the point of listing, I will be asking myself – am I worth one-sixth of that? We used to use the “one-sixth” figure because China is one-sixth of the global population. When we see Google do well, Baidu should be one-sixth the value, search to search.
In Southeast Asia, it’s not one-sixth. We’re half of the Chinese population. Therefore, GOJEK or Grab should be half the valuation of DiDi. And DiDi takes its valuation cues from Uber. Of course, these were the figures we were using five years ago. I don’t have comparable figures for today’s context.