Temasek-backed Vertex Growth Fund expects to hit the first close of its $330-million second fund by next month, according to a senior executive at the firm.
Vertex Growth is the growth stage-focused fund under Singapore-headquartered investment holding company Vertex Holdings.
Vertex Growth managing director James Lee told DealStreetAsia the firm has seen strong demand from limited partners (LPs), with soft commitments for Vertex Growth Fund II already totalling its target corpus of $330 million.
The fund has a hard cap – or maximum size – of $400 million. Vertex may re-assess the vehicle’s target based on fundraising progress, added Lee.
Vertex Holdings, a wholly-owned subsidiary of Singapore’s state investment firm Temasek Holdings, will remain the anchor investor for the second growth fund, with several LPs from the firm’s first $290 million growth fund also re-upping. Lee added that the firm is also actively diversifying its LP base to strengthen its network, expertise and value-add as an investor.
Last week, Vertex Growth announced it had secured Korea Venture Investment Corporation (KVIC) as an LP in Vertex Growth Fund II. The South Korean government-backed fund-of-funds has approved a commitment of $15 million to the Vertex vehicle, according to a disclosure.
KVIC has over $4 billion in assets under management (AUM), according to its website.
“At Vertex Growth, we consider Japan, South Korea and Europe to be important capital markets with strong institutional investors who have an eye for global innovation with vibrant startup ecosystems that we can invest into and create value for. We have always thought it was a good idea to diversify our LP base and up to this point, our investor base was largely from Southeast Asia and Taiwan,” said Lee in an interview with DealStreetAsia.
“Having institutional investors from these markets wouldn’t just bring value to Vertex from a capital standpoint, but strategically as well from the kinds of relationships and partnerships that will support our portfolio companies,” he added.
Vertex has since expanded its presence to Japan and South Korea, where it has local teams on-ground to do deal sourcing, build partnerships and expand its network in those markets.
Similar to Vertex Growth’s first fund, its second fund will write cheques of $10-15 million per deal for around 20 portfolio companies. However, it will raise its investible cap slightly to $30 million, allowing the firm to place more concentrated bets on select portfolio companies.
The primary goal of Vertex Growth is to double down on or maintain its pro-rata stake in the biggest winners from Vertex’s early-stage portfolio. Lee said it was Southeast Asian ride-hailing and payments super app Grab that provided Vertex with the impetus to enter growth-stage investing.
Vertex’s early-stage Southeast Asia and Indian fund was Grab’s first institutional investor back in 2014. Grab today is in the midst of rolling out plans to list in the US via a blank cheque merger deal worth $40 billion.
“They (Vertex Ventures SEA and India) invested in Grab’s Series A, B and C, but when they reached Series D, the fund had hit their cap and could not make a follow-on investment in the interest of portfolio diversification. At that point in time, Grab was still below the $1 billion valuation mark,” shared Lee.
“Given where they are today at over $20 billion, you can see the immense upside that could have been captured if we had a growth fund available at that time. We figured that we needed to do something about it, and that’s how Vertex Growth came about,” he added.
To date, Vertex Growth has invested in around 14 companies globally, including Indian online meat store Licious, Singaporean intellectual property platform Patsnap, and Taiwanese live streaming app 17LIVE.
According to Lee, Vertex Growth is seeking at least 3x returns, or a net internal rate of return (IRR) of 30%, from the second fund. It has a fund tenure of 7-8 years compared to 10-12 years for most VC funds.
Vertex Growth’s first fund has a positive net IRR just two years after its launch, Lee said. Some of that can be attributed to gains made from a partial exit from UK-based biotech company Bicycle Therapeutics, which listed on the Nasdaq in 2019.