Sequoia Capital India is one of the largest financiers for Southeast Asian startups. In Indonesia, for instance, it has invested in three of the country’s unicorns—Tokopedia, Gojek, and Traveloka.
Since 2019, its rapid scale-up program, Surge, has nurtured early-stage startups in the region with mentorship programs and seed investments running at up to USD 2 million. The program is currently opening its fourth cohort for founders from India and Southeast Asia.
In early July, the Menlo Park-based VC fund announced its seventh fund, which amounted to USD 1.35 billion poured in by limited partners. The firm split its fund into two parts to invest in early- and growth-stage companies from India and Southeast Asia. With a combined gross domestic product (GDP) that exceeds USD 14 trillion and more than 1.5 billion internet users in 2030, Sequoia believes that the two regions will be a massive digital market bloc in the next decade.
KrASIA recently spoke with Sequoia Capital India’s managing director, Abheek Anand, about how the firm plans to funnel its seventh fund in Southeast Asia, and how the ongoing pandemic has changed the firm’s investment style.
KrASIA (Kr): Out of your latest USD 1.35 billion fund, how much will be allocated for investments in Southeast Asia?
Abheek Anand (AA): We won’t be able to provide a breakdown of the fund allocation. What we can say is that the firm is very bullish on Southeast Asia. Sequoia India was one of the first global VCs to start investing in this region. With the new fund, the team will continue to double down on partnering with founders across all stages and sectors.
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Kr: Considering the current economic slowdown in South and Southeast Asia, are you still taking cutting checks for early-stage companies, or have you shifted to go for companies that have shown sustainable growth during the pandemic?
AA: Sequoia India has always partnered with firms across all stages—and now the fund structure also reflects this.
It’s true that in Southeast Asia there has been a strong early-stage focus. Gojek, Tokopedia, and Zilingo were early-investments. In recent times, the team has partnered with several others like Ula, Beam, Hmlet, along with the companies that are part of the Surge portfolio. In many of these companies, Sequoia India has been the first institutional investor.
However, with the new dedicated growth fund, the focus on growth stage companies will continue. This is being driven by this region’s rapidly developing and maturing ecosystem. An increasingly connected consumer base has led to the rise of consumer internet companies, which have been growing rapidly, taking advantage of what is turning out to be a large market opportunity. Additionally, companies that Sequoia India partnered with in the early-stages have matured, and the fund continues to double down on those relationships.
What’s important is not so much the stage, but the founders’ vision coupled with the market opportunity. We want to not only be a part of the first generation of unicorns, but also every subsequent generation of pathbreaking companies that are being born today.
With COVID-19, there is increased attention on businesses that are tech-focused or have a focus on digitization. What is perhaps going to be non-negotiable going forward is having really strong unit economics. Growth at all cost, whether it’s early or late stage, is a thing of the past.
Kr: Sequoia is an agnostic investor, but given recent changes in South and Southeast Asia, are there specific sectors that will be prioritized?
AA: Consumer internet, B2B, financial services, healthtech, edtech—sectors that are seeing tailwinds due to COVID-19 will naturally see more interest from us. Digital businesses that are built locally but can cater to a global market without the requirement of a physical presence in those markets will be in demand. This is true for the industry overall.
The pandemic has taken away some opportunities while creating many more, owing largely to accelerated tech adoption. In a nutshell, businesses that are able to take advantage of this digital transformation and solve problems at scale across industries are of great interest.
Kr: What is your vision of the startup ecosystem in Southeast Asia in the next few years, while the region undergoes rapid digital transformation?
AA: When Sequoia India’s team partnered with Gojek and Tokopedia in the early days of their journeys, we had a vision of what they could become in ten years. Today, they have put Indonesia on the map as a rapidly growing startup economy. And this is a pattern we are seeing across the rest of Southeast Asia. And it’s a story we want to empower and enable.
Kr: How is the health of Sequoia’s portfolio companies in Southeast Asia? What have they done to weather the current crisis?
AA: These are trying as well as telling times. Trying because only resilient founders will come out on the other side, sharper and stronger than ever before. Telling because the crisis is forcing everyone to take a hard look at business models, values, and priorities. The founders that we work with have been very swift with action, whether it is reevaluating priorities to ensure a runway of at least 18 months, adapting to online distribution models, reconfiguring supply chains, and even pivoting the business.
In a once-in-a-100-years crisis like COVID-19, over the last four to five months, we have been working with our founders to review their business models and priorities to ensure a clear path to profitability. As demand slows down for most businesses, it presents an excellent opportunity to focus on product innovation: How can you make your users fall even more in love with your product? This will ensure retention and loyalty in the long term. This is also a great time to focus on building a strong company culture, hire specialized talent, and build a mission-driven team.
Most importantly, at a time like this, support, empathy for your team, honesty, and decisiveness matter the most.
Kr: What are the long-term changes the pandemic will bring to venture capital in terms of making investments and guiding portfolio companies?
AA: The focus on building long-term and adaptable businesses with a clear path to profitability is stronger than ever. We believe this change in philosophy will remain. This, in turn, has forced the ecosystem to go back to the basics—reinvent, and double-down on customer retention, loyalty, and love. The “growth at any cost” attitude is changing to sustainable growth with solid unit economics.
