Impact is part of the venture capital DNA.
Many of the megatrends that Venture Capitals (VCs) are looking at overlap with Dana Impak’s six key themes. There is a push for innovation and a huge opportunity within the startup space in serving the underserved through areas such as financial inclusion, food security, digitalisation, access to healthcare and education, and sustainable cities.
While based in Silicon Valley, 500 Global and Plug and Play see a lot of potential that can be galvanised in the Southeast Asian startup space. 500 Global’s first Southeast Asian investment was in 2011 and 20% of their global team is based in KL. Plug and Playstarted investing in Southeast Asia since 2015. We are just scratching the surface in terms of capital, especially compared to the public markets and other areas within private investment.
Team, technology, and traction are the key filters used to identify potential investments. There needs to be defensible and scalable Intellectual Property (IP) and strong conviction that the company can become a category leader. Investors also look at the serviceable market size, which is a subset of Total Addressable Market (TAM) and varies by geography and industry.
Corporates play an important role in the VC ecosystem as investors, innovation or distribution partners, and acquirers.
While VCs focus on early seed ventures, corporate funding is essential to keep startups afloat in the following rounds. Also, corporates provide a platform for startups to acquire customers.
Corporates are increasingly engaging in ‘external innovation’ by outsourcing innovation to startups. In contrast to the traditional model of supplying mentorship and funds, corporates are also supplying problem statements for startups to provide solutions to, and this is a mutually beneficial relationship.
Corporates need to understand that VC is a long game. Returns take time to materialise. Currently, many corporate innovation initiatives often fizzle out after 2-3 years due to poor or no returns, as corporate executives tend to take short-term views.
Managing risks and accepting failures are crucial for VCs to thrive.
Diversification helps manage risks. 500 Global’s track record shows that their approach of de-risking early-stage venture via diversification through a larger number of investments has worked well, compared to traditional venture capital that only invests in 10-20 companies.
Failure is common in nascent markets, but we should not let this deter investment to help jumpstart the economy. Negative headlines about failed VC investments are causing concern about global funding avoiding the market. However, this is usually not the case, and the ecosystem is maturing.
VC is high-risk, high-reward, and long-term. 500 Global invested in Mexico and Southeast Asia which was very risky back then but are currently generating positive returns.