Quest Ventures raising two new funds totalling up to US$120m

Singapore

VENTURE capital firm Quest Ventures is raising two funds - an open fund of US$50 million to US$100 million, and an impact fund of up to US$20 million - The Business Times has learnt.

Quest, a seed stage and Series A investor, is known for cutting first cheques for Carousell, 99.co and Shopback. This is the first time that the firm is raising capital from limited partners (LPs). It invested in its portfolio of more than 40 active companies using money that its managing partner James Tan made from being the co-founder of Nasdaq-listed firm 55Tuan, an online daily deals site in China.

Mr Tan believes the time is right to launch the two funds because the right people are in place. Quest recently appointed serial entrepreneur Goh Yiping and industry veteran Jeffrey Seah as partners. They were previously venture partners since 2016 and 2017, respectively.

Ms Goh was co-founder and chief product officer of MatahariMall.com, a Lippo Group-backed omnichannel fashion e-commerce site in Indonesia. Prior to that, she co-founded All Deals Asia, the South-east Asia e-commerce aggregator that was acquired by Lippo in 2014.

Mr Seah spent 15 years at global media agency Starcom MediaVest Group (SMG) in two separate stints, which included a role as chief executive officer of South-east Asia. He later co-founded an advisory partnership with services in go-to-market strategy, corporate venture capital and digital transformation for Asia-based multinational corporations.

"It's a combination of us getting together and thinking that with this kind of calibre, why not see if we can also raise some more money from outside to buy into our thesis?" said Mr Tan.

He added that the firm now has a track record too. It is currently wooing potential LPs with an internal rate of return (IRR) of 41 per cent, above the industry standard of 20 per cent.

Quest is targeting a first close for both funds by June 30 and a final close by the end of this year. The first close is expected to be US$20 million for the open fund and US$4 million for the impact fund.

Each fund will cover investments in 40 to 60 startups. Ticket sizes of US$500,000 to US$1 million will be issued from the open fund, while follow-on investments can range from US$1 million to US$2 million. For the impact fund, the first cheques and follow-on cheques will range from US$100,000 to US$500,000.

The primary markets that Quest is targeting are Singapore, Malaysia, Indonesia and Vietnam, while the secondary markets are Cambodia, Laos, Myanmar, Thailand and the Philippines.

For the past eight years, the firm has concentrated its investments in digital commerce - not just in purchasing platforms, but also in payment systems, remittance, logistics and media that influence purchases.

Mr Tan told BT that Quest now wants a bigger bite of the pie. It is pivoting from focusing on digital commerce to focusing on what it terms the "digital economy".

He acknowledged that the term is a buzzword. "People tend to think that it means the business has to reside on your phone or laptop, and must be something that is digitalised. We don't think that."

And Quest is not on the lookout for "fanciful tech", either. "We're talking about just simply, can things become more efficient because of the application of information technology?" said Mr Tan.

He pointed out that the next generation is taking over some of the manual chores of today, which creates many opportunities. Startups such as Grab and Quest portfolio firms Haulio and Glife are second generation founders that overlay their parents' businesses or industries with smarter use of tech and capital.

As the firm sources for deals, it will stick to the three factors that make up its investment thesis: startups that can scale within a geographical area, replicate the business in another area, and that function within a large Internet economy.

There are currently more than 20 deals in the pipeline over at least a year for the open fund, spanning industries from supply chain to property. The firm receives 40 to 60 pitches every day.

The launch of the impact fund will also deepen its presence in the environmental, social and governance (ESG) space. Mr Tan pointed out that Quest is one of the handful of venture firms dabbling in early-stage impact investing, which has yet to take off in the region because LPs are still concerned about financial performance.

But the space is slowly heating up, with more organisations and large funds incorporating an ESG angle in their investment strategies.

The company is already sitting on more than 20 pipeline deals for the impact fund, over at least a year. Its current portfolio companies include Fairmarch, an online marketplace for sustainable products, and Social Collider, a co-working and collaborative space provider for impact organisations.

As Quest fundraises, it is keeping its ears open for any news from the authorities about the framework of the Variable Capital Company, an entity passed into law in October last year to encourage funds to domicile in Singapore.

More clarity will need to be given about the incentives, said Mr Tan. Quest will make its decision on whether to drop anchor in Singapore or the Cayman Islands, a tax haven, by April 1.