Spiral Ventures (formerly IMJ Investment Partners) is aiming to hit the first close of its South Asia and SEA-focused fund at between $15 million and $20 million next month, partner Yasuhiro Seo told this portal in an interaction. He added that the firm was looking to close as many as three deals in India soon.
“I have to say that it’s challenging to reach this maximum target of $50 million. But we think we are optimistic about the fund. We have received very good responses from potential LPs,” Seo said.
“Several corporations have committed (to become LPs). I am not usually an optimistic person, but for this (fund) I am,” he added.
Spiral Ventures is a rebrand from its previous entity, IMJ Investment Partners, which had made over 30 investments largely in seed stage startups across Southeast Asia and South Asia since its inception in 2012.
This new vehicle will continue to invest in startups in the region, targeting Series A and B stages with check sizes between $500,000 and $1 million for Southeast Asia, as well as seed and series A rounds ranging $300,000-500,000 for South Asia, particularly India.
In an interview with DEALSTREETASIA, Seo talked about the fundraising, upcoming deals, investment strategies and activities across the region. Edited excerpts:
You have just rebranded your company to Spiral Ventures from IMJ Investment Partners. Does it affect your investment thesis? I understand that you’re moving up to series A and B stage. Could you could elaborate your sector and vertical focus points?
Yes, after the rebranding, the team and the fund (existing Japan fund) remain the same with only shareholders that are different.
Since 2012 now, we have operated multiple funds. We started at $1 million fund a long time ago in 2013, and yes, we understand that it was a very small fund. Then we started another fund, which is a medium-term fund and from which we invested in 20 companies from all the early stages.
We liked the early stage because we thought it was a very good chance to get in touch with these seed and series A stages in Indonesia and other potential countries in SEA. At the time as a team, we built communities, especially in Indonesia and Philippines, together with series A startups. So, we had a very good chance to invest in series A startups.
Now, we’re moving on to creating a new fund (Spiral Asia Fund I) trying to aim at least $20-50 million focusing on SEA or India. We see there’s a market (for it). We invested in many potential early-stage startups and now they are growing so fast, and they are raising funds again. However, we see there are not so many mid-stage investors, not only in Indonesia but also in the region. Although it’s improving, there’s still a very low number of mid-stage investors. And so we think this is a big change, and that’s why we want to cover series A and B.
Your move to move up to series A and B, does this mean there will be a lot of follow-on investments within the next few years?
Well, yes and no. Because we don’t want to create conflicts between this fund and the existing fund. These two funds have different LPs, so usually when you have different LPs there will be conflict. Unless we can convince the LPs, we will focus more on new startups other than our portfolio companies.
Do you see more and more early-stage VCs in the region moving up as well? Does this mean that the gap between early and mid-stage is narrowing now?
When we started investing in Indonesia, back in 2013, there were not so many early-stage investors. There were only maybe 500 Startups, CyberAgent, and the like. They are raising more funds now. Meanwhile, another group of VCs like SMDV, Skystar, Venturra Capital, only came around about two years ago. So now there’s a lot of early-stage investors in Indonesia, and there’s a much higher chance for startups now to get funds from VCs in Indonesia.
What is the status of Spiral Asia Fund I and where are you targeting to close it? What is the profile of your LPs for this fund?
We are just starting to talk to LPs, so it’s still in the process. Some companies committed already. The challenge is now to raise the fund to $50 million. Our existing fund was all Japanese investors, but now we’re trying to raise from international investors as well because we have met all the requirements to do so. Now we have a right to raise funds from international investors. We’re talking to Indonesian, Indian, and Singaporean investors.
The fund, which will focus on SEA and India, is expected to hit the first close in September while the second close is hoped for the end of next year. Once we get the fund we can start deploying it in either September or October.
Are you planning to raise a new fund specifically targeting Southeast Asia, or maybe even more specific, Indonesia, considering the size and opportunities of the region?
I think it’s definitely possible. The market is huge and most of the entrepreneurs are from Indonesia. Even from our existing fund, Indonesia comprises the largest portion, compared to any other countries in SEA. Everyone – investors, especially the Chinese ones – are looking at Indonesia.
There are more exits and startup creations in Indonesia, so the region is one of the most active. It’s very natural that there’s a lot of interest now for the country, considering the startup activity there.
A lot of Indonesian local VCs have felt that there’s a slow funding activity, and there’s a lot of dry powder standing on the sidelines, in the early-stage space in the first half of 2017. Do you feel this is also true for Spiral? Why do think this is?
I think it’s true that the VCs are now looking for a new space. Back in 2015, there were a lot of new startups: e-commerce, fintech, education, healthcare, all these spaces were very new. Now a lot of them are already saturated. In fintech alone there’s already a number of P2P lending startups, not to mention mobile wallets. Those players are already getting bigger and bigger.
The major spaces in the past three years are now getting saturated, and these early investors cannot invest.
For Spiral, from personal experience, if we’re only talking about Indonesia I have to admit that yes it’s getting more difficult. But now I’m looking at the whole Asia, so I don’t really feel so.
Each country has a unique space and different potential. India is very unique because if you can tap in 10% of the population it’s already very big, so you can even focus on the high-end segment.
In Indonesia, new companies are coming, but there’s no real new concepts or business models anymore. Players like Go-Jek, Tokopedia, and Bukalapak have already owned almost all the verticals, so this is why it’s hard for the new players in the market to compete. It’s already very different from three years ago.
Operating since 2012, how do you see the Indonesian ecosystem maturing, and where is Indonesia compared to other emerging markets such as India?
First, Indonesia is getting more and more mature. Three to four years ago there wasn’t a unicorn, and almost everyone was a single digit valuation, now it’s $100 million and there’s even $1 billion. There’s a lot of bigger companies now. Yet, the whole ecosystem, in general, is still at a very early stage. There’s still so much room for them to grow because internet penetration, while growing, is still very low. Just take a look at 4G penetration, which is still very low. Unlike the US and Japan and any other developed countries, Indonesia still has very big potential for growth.
In terms of comparison, I don’t know how to compare Indonesia with any of these countries. Indonesian market size is big, not only when it comes to population, but also the number of entrepreneurs and the number of beneficiaries from internet service.
Other countries except for the Philippines have to undergo regional expansion because their markets are very small.
How many exits and investments have you had and how many in the pipeline right now, globally and in Indonesia?
Less than 10 exits and about 50-60 investments globally. For SEA and India alone, there are 35 investments.
Are there any deals in the pipeline that are nearing closing? Anything from Indonesia?
We have about 2-3 upcoming Indian deals trying to close soon. We are very active in India now. There are no new deals in Indonesia and SEA yet, only follow-on investments.