New Asia Fund X targets early-stage growth companies in South-east Asia
VETERAN venture capital investor Jeffrey Seah has launched a new fund, Asia Fund X (AFX), targeting early-stage growth startups that are on the cusp of expanding into multiple markets in South-east Asia.
“I felt that the early-growth-stage startups lacked support in South-east Asia, and many struggle with it,” he said.
Rather than being parked under Quest Ventures, where Seah runs Asia Fund II, the new fund is parked under MSW Ventures, his new business.
Asia Fund II, which focuses on early-stage startups, will continue to be run under Quest Ventures.
MSW Ventures stands for mettle, salt and wealth, and the X in AFX stands for exceptional growth and founders with the X-factor, he said.
AFX recently had a first close of the fund on May 4, and Seah is coy about the final fundraising target. He expects the fund’s final close to be two to three times that of Asia Fund II, which raised US$50 million.
The fund is looking to make follow-on investments in some of Asia Fund II’s portfolio companies, as well as new companies. There is no sector focus beyond the digital economy, but Seah is looking for targets that have a multi-market strategy in South-east Asia and are embarking on or about to start expansion.
Funds are already being deployed and, for a start, will be used for equity investments and purchasing secondaries from earlier investors of a target company.
Rather than the usual startup growth metrics such as gross merchandise value, Seah said that the fund is looking at financial metrics more aligned with standards followed by bourses such as the New York Stock Exchange. This means no tunnel vision on the top line, with burn being a point of focus for AFX, and working with its portfolio companies to cut their cash burn.
“For example, revenue per headcount. We’ve been looking at headquarter costs which cannot be more than 5 per cent of revenue,” he said.
A key selling point of AFX to founders is the Rolodex power it brings, said Seah. The limited partners (LPs) are individuals in corporate roles or family offices who are still running their core business. The fund also counts Temasek-backed Pavilion Capital as an LP.
“At this stage, founders are looking to open doors, and that’s the reason why my LPs need to be active business people,” he said.
Seah is taking the long view with AFX, looking to return value over the 10-year tenure of the fund rather than extracting immediate value. That is made easier with the LPs being operators and not purely investment professionals.
Cheque size may be limited to avoid concentration risk, but AFX will not shy away from good deals. For instance, if the required cheque size is US$10 million, and is bigger than AFX can cough up, LPs could come in to help the fund seize the opportunity, with the fund leading the investment.
“We only bet on the best of the best, and we should have a relationship where the fund and LPs can work together equally at the table,” he said.
But the fund is not looking for billion-dollar unicorns. Seah instead hopes that AFX will have quality exits, with portfolio companies that continue performing in public markets. “When we exit, people will buy them and keep them as dividend stock,” he said.
