Music-streaming service Spotify, which made its trading debut on Tuesday via an unusual direct listing, has created winners out of its investors, including Singapore-based venture capital firm K2 and its chief Ozi Amanat.
Amanat said he owns ‘tens of millions’ in Spotify stock both personally and through K2, and added that the music-streaming company’s strong listing gives the firm well over 300 per cent returns on this investment.
“We are very long-term bullish on Spotify, and they are only scratching the surface in terms of Asia subscribers. Their potential is huge. We are prudent investors – we will definitely book profits and return capital to K2’s investors. Our investors are getting profitable returns on a tech investment and that is a good story for the ecosystem here,” Amanat told this portal.
K2’s first fund made investments in 15 companies, including several tech unicorns including Uber Technologies, Spotify, Magic Leap, AirBNB, Twilio and Palantir.
“We bought Spotify in multiple rounds,” said Amanat, as he used a baseball analogy to explain the firm’s investment thesis.
Noting that early-stage investors, such as Sequoia (which recently made over 1000x return on its seed investment in Dropbox), bet on home runs, and against the industry’s fundamental belief that ‘it is hard to get rich in tech if you aren’t early to a deal’, Amanat said K2, as a growth-stage investor, was looking at base hits and doubles.
“We try not take too many binary bets – we don’t try to hit a home run and return the entire fund from one bumper investment,” he said, adding that Asia provided few opportunities for VCs to make similar bets, as Spotify did for K2.
K2 had closed its first fund at $183 million in 2016 and is currently on the road to raise $200 million for its second vehicle, which it aims to close later this year.
Its Asia portfolio includes India’s Paytm and Revolution Precrafted, the first unicorn in the Philippines. Last year, it had also led a $32.5 million funding round in Paktor, the region’s biggest online dating app.
Amanat said that going forward, K2 was looking at a change in strategy and would be committing capital towards seed and Series A deals, especially in Southeast Asia.
“We will soon become a continuity fund – if we can do Seed and A Rounds, and if they do well, we can be follow-on investors for B and C rounds – that is a rare opportunity and a good new dimension for us,” he said.
While Asia increasingly matches the US in terms of tech investments (by the amount of capital raised by startups) and deals in the continent hit an all-time high in 2017, Amanat said the numbers fail to capture two inter-linked factors. One, there are not enough VC dollars to back Series B and upward rounds in most of Asia, when compared to the Valley, and second, the absence of quality deal flows for VCs that can help build investor confidence to commit to Series C and D rounds in Southeast Asia compared to Silicon Valley, China or even India.
Earlier this year, K2 had partnered with Trendlines Medical Singapore, a subsidiary of SGX-listed Israeli firm The Trendlines Group, to participate in SPRING SEEDS Capital’s (SSC) S$100-million investment allocation via the Startup SG Equity scheme. As part of the scheme, SSC supports early-stage startups across technology and industry domains and aims to catalyse private-sector investments in startups via government equity co-investment.
When you do seed and Series A, it is different from doing later rounds. You need bandwidth to help these startups on a range of things. But for Series B and upward, VCs often don’t bring much to the table, other than capital.
We will leverage the knowledge of our partners and co-investors. Some of it, like helping companies with accounting and financials can be optimized and outsourced. We will bring in other VCs – I am an asset-light VC – a one-man band. We don’t have the bandwidth, but we will primarily drive value from the relationships we will bring.
What got you interested in a company like Revolution Precrafted?
It is an ecosystem play – we are moving towards an asset-light digital age, and being able to live a minimalistic life in a beautiful space. That fits the model of AirBNB not owning homes, Uber not owning cars, and Spotify not owning the record labels. The 30-something generation is looking for this, and don’t want to be burdened by traditional infrastructure their parents had.
Where are the other opportunities like Revolution Precrafted and Paktor in this region?
It is Indonesia, Singapore and India. We have Paytm in India. We are looking at Traveloka in Indonesia, and find them very interesting. And we have not given up investing in companies like Grab and Go-Jek in future rounds.