Source: DealStreetAsia

Ka Kay Lum

Singapore-headquartered early-stage venture capital firm Golden Gate Ventures has opened its Malaysia office in Kuala Lumpur, it said in a statement on Friday.

According to its managing partner Vinnie Lauria, the VC firm plans to commit about $18 million of its recently closed $100-million Fund III to back Malaysia-based startups. It has previously invested about a quarter of its $60-million Fund II – closed in 2016 – into Malaysian startups.

The Kuala Lumpur office is the firm’s third, after Singapore and Indonesia.

Golden Gate Ventures hit the final close of its third fund at $100 million in mid-September. The fund was oversubscribed and anchored by existing LPs, including Temasek Holdings, South Korea’s Hanwha, Naver Corp and EE Capital. New LPs included Japanese entrepreneur Taizo Son’s Mistletoe and Korea Venture Investment Corp.

In a phone interaction with DEALSTREETASIA, Lauria said the VC firm will be spending more time and capital in the Malaysian market after the opening of the Kuala Lumpur office.

“Malaysian companies are doing very well, which is why we’re looking into it so closely. If you look at some of the stronger regional startups, they have Malaysian founders and have moved out [from Malaysia] but when I look at Malaysia in terms of the size, it’s a country that is very different than Indonesia.

“In Jakarta, the companies have to be in-country-focused for many years before you think about moving out. But Malaysia is similar to Singapore, where the founders are thinking going beyond Malaysia from day 1 – so the DNA of entrepreneurs in Malaysia is very different from the ones in say Vietnam, Thailand or Indonesia,” he said.

Golden Gate Ventures partner Justin Hall said that Malaysia’s diverse mix of ethnic and cultural influences as well the country’s consistently growing economy makes it a microcosm of the greater Southeast Asian economy.

“With the diversity of its people, culture and economy; Malaysia is truly Asia, and that makes it the perfect platform for businesses to expand across ASEAN, as the products and services created for this market can take advantage of the country’s built-in potential for scalability,” he added.

Founded in 2011, Golden Gate Ventures has built a portfolio comprising about 40 companies in over seven Asian countries in the consumer internet space. In Malaysia, it has backed e-commerce startup GoQuo and on-demand home services platform ServisHero.

Some of the firm’s exits so far include Singapore’s grocery startup Redmart, Taiwan’s Woomoo, Indonesia-based fintech startup Mapan (formerly known as Ruma), carpooling startup TemanJalan and Thailand’s dating app Noonswoon.

One of its portfolio companies, Singapore’s home-based care-giving startup Homage, told DEALSTREETASIA that it is expanding to Kuala Lumpur in early 2019. The firm, which raised a $4.15-million Series A round in July, provides licensed practitioners with a platform to offer on-demand services for the elderly.

Homage CEO Gillian Tee said the startup plans to have 1,000 caregivers on its platform by the end of 2018. It is also seeking to enter new markets such as Australia, Thailand and Indonesia in the near future.

Edited excerpts of an interview with Vinny Lauria:

Why open an office in Kuala Lumpur when you could just easily reach out to Malaysian companies across the causeway from Singapore?

We’re going to be spending more time there and putting more dollars there as well. So we want to make sure someone is on the ground to help the portfolio companies. We want to create the same thing as what we have created in Singapore in Malaysia over the next few years. We hope to create peer support for our companies and have on-ground events where investors can speak to the companies. Since we’ve launched the office in Jakarta, we did the same thing.

Malaysian companies are doing very well, which is why we’re looking into the country so closely. If you look at some of the stronger regional startups, they have Malaysian founders and have moved out [from Malaysia] but when I look at Malaysia in terms of the size, it’s a country that is very different from Indonesia.

In Jakarta, the companies have to be in-country-focused for many years before you think about moving out. But Malaysia is similar to Singapore, where the founders are thinking going beyond Malaysia from day 1 – so the DNA of entrepreneurs in Malaysia is very different from the ones in say Vietnam, Thailand or Indonesia.

What do you think Malaysian entrepreneurs could do better in order to be more competitive?

I think it’s really about understanding how to connect with investors and pitch to them. What I’ve heard is that there’s no funding here on the ground but the reality is there’s definitely lots of funding on the ground in Malaysia as well as the region – where regional investors do spend time in Kuala Lumpur. So I think the gap over here is that there are phenomenal entrepreneurs in Malaysia but there’s also a lot of funding on the ground.

Is there any change to the investment strategy for the third fund?

No, surprisingly enough – I don’t know if that’s good or bad (laughs). Since we started in late 2011, it’s been the same – consumer internet and Southeast Asia. The only change that we have as we grow is that our check sizes have gotten bigger. That’s a combination of us building a track record, raise larger funds and also the whole ecosystem maturing – what a Series A round is like today, it’s very different from just two years ago and completely different from four years ago.

We’ll be cutting ticket sizes in the range of $1 million to $5 million.

Are there any upcoming exits for your portfolio companies?

We have some acquisitions offer coming in for some of our companies and we have quite a few exits in our portfolio already.

Has Fund II been fully deployed?

No. We reserve half of every fund for follow-on investing.

Have you already started to invest out of your third fund?

Yes, we have.

How has the fundraising journey been for the third fund?

To give some context, for our first two funds – and I think it’s a market norm – I think it’s about six to eight months of fundraising and first close, then a solid 12 months for our final close. For Fund III, our fundraising was five months, so it was reduced further before the first close. But then we’re oversubscribed within three months – which normally takes 12 months for us but this time it’s three months.

It seems that LPs are keen to commit to your third fund.

Yes, there are definitely LPs looking at the region and there’s a lot of VC and LP money. But it’s hard to raise if you’re a first-time fund. But we’re at our third fund, so we have proven history and track record as well as returns. Our first fund has returned 1.7x to investors. The track record of the fund has been very strong.

Are the LPs pressuring you and your co-founders to exit your investments?

We come from Silicon Valley, so VCs are very long-term, it may be a 10-year fund and sometimes longer. Imagine coming to Asia about eight years ago, people I spoke to, when they heard our fund is more than five years, it was too long for them. The idea is to invest, then sell out and then move on – for both VCs and LPs that I met. But I think that has shifted, so we don’t have LPs pressuring us for exits. For example, Temasek Holdings is [looking at this for] very long-term. That being said, I do ask LPs what have they learned in markets, like what they have learned from investing in China for the past decade.

So one thing I do hear between China and India, the LPs said that their long-term investments have no exits. There are companies being acquired, but there are only stock moving around and no cash. So that has made me aware, as a fund manager, at the end of the day, our job is to have a black box, people put in money and they expect money back, and we need to do it the correct way. There are no LPs pressuring us but my partners and I have to be proactive and say, “Let’s make sure we avoid some of the pitfalls that the VCs had in India” – this is where we proactively say that this particular company will have difficulty in raising the next round, let’s work out an exit with them.

You also launched a $10-million cryptocurrency fund, LuneX Ventures, in August. How many investments has it made so far?

We have made two investments so far. So the thing is we’re investing in ICOs and deals that fall into the seed funding category. Many of these companies are earlier stage companies, but the amount that these companies are raising are way higher than seed.

What’s in pipeline for 2019?

Quite healthy. Normally, at this time of the year, in December, things are beginning to slow down but it hasn’t for us. We have four deals pretty high up in our pipeline right now. So the fact that we’re going into a low season with so much activity, I’m very bullish for 2019. If I look at the deal flow, there were articles that said the number of deals have slowed down but I would contest that.

Publicly, the number of deals closing in 2017 have been lower than expected but the deal flow that we’ve gotten, it’s much higher – we tracked it with our CRM software. The reason why the public number of deals are lower in 2017 is that there were funds that were raising or are still currently raising capital, so you have capital that has not come up but they will in the coming months.

Are there any particular markets that you will also look at beyond Malaysia, Singapore and Indonesia?

Yes, we’ll be looking at Vietnam. For us, where we putting our offices, we’ll also put in dollars. Like Malaysia has a lot of dollars historically from Golden Gate Ventures, and I believe that’s going to continue. We do have some investments [in Vietnam] but I’m pretty bullish on us stepping up our investments in Vietnam as well.

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